Canada’s dollar reached its lowest level in six weeks as a report showed retail sales contracted more than forecast in June, adding to evidence economic growth is slowing.
The currency declined versus its U.S. peer for a fifth straight day, the longest slump in almost two months. The drop in sales, which rose the previous month the most since 2010, followed declines in Canadian wholesale and manufacturing sales in June and a surprise loss of jobs last month. The government will report July consumer prices tomorrow and gross domestic product data next week.
“This is the third straight significant miss on the June activity numbers, setting us up for next week’s June GDP and second-quarter GDP numbers, and obviously the Canadian economy stumbled pretty significantly at the end of the quarter,” said David Watt, chief economist at the Canadian unit of HSBC Holding Plc. The Bank of Canada may be “locked on the sidelines for an extended period of time.”
The loonie, as Canada’s currency is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.3% to C$1.0504 per U.S. dollar at 10:48 a.m. in Toronto. It touched C$1.0517, the weakest level on an intraday basis since July 10. One Canadian dollar buys 95.20 U.S. cents.
The yield on Canada’s benchmark 10-year government bond increased three basis points, or 0.03 percentage point, to a two-year high of 2.78% before trading little changed at 2.75%. The price of the 1.5% security due in June 2023 added six cents to C$89.40.
The Canadian currency slid yesterday after minutes from the Federal Reserve ’s last meeting showed most policy makers were “broadly comfortable” with Chairman Ben S. Bernanke’s proposed timeline for starting to wind down monetary stimulus this year if the economy improves.
The American central bank’s asset purchases, which fueled growth in riskier assets, have raised concern it would lead to inflation and debase the U.S. dollar. Investors are betting slower bond buying will cause the greenback to strengthen against its Canadian peer.
“We saw a selloff across risk assets,” said Mazen Issa, Canada macro-strategist at Toronto-Dominion Bank’s TD Securities unit, by phone from Toronto. “It fits into our general expectation for just a weaker Canadian dollar.”
The loonie fell today against the majority of its 16 most- traded peers as Statistics Canada said retail sales dropped 0.6% to C$40.1 billion ($38.2 billion). Flooding in Alberta and a construction strike in Quebec contributed to the slide, the agency said. Economists surveyed by Bloomberg News forecast a 0.4% decrease. Sales rose a revised 1.8% in May.
Canadian consumer prices increased less than the central bank’s 2% inflation target in July for a 15th straight month, a Bloomberg survey forecast before tomorrow’s report. Prices rose 1.5% from a year earlier, it estimated. Canada’s economy grew 1.6% in the second quarter while slipping 0.5% in June, economists forecast before data due Aug. 30.
The Bank of Canada has kept its benchmark interest-rate target at 1% since September 2010 to support the economy.
The loonie weakened even as futures on crude oil, Canada’s largest export, gained 0.5% to $104.32 per barrel in New York, after touching an almost two-week low yesterday.
Options traders were at the most bearish level on the Canadian dollar in six weeks. The three-month so-called 25-delta risk reversal rate, which measures the premium charged for the right to buy the U.S. dollar against its Canadian counterpart versus contracts to sell, was 1.6%, matching yesterday’s level, the highest on a closing basis since July 8. The 2013 average is 1.25.
Implied volatility for three-month options on the Canadian dollar versus its U.S. counterpart increased to 7.8%, the highest since July 16. Implied volatility is used to set option prices and gauge the expected pace of currency swings. The average for this year is 6.8%.
The loonie fell 0.8% in the past week against nine other developed-nation currencies tracked by the Bloomberg Correlation Weighted Index. Only the New Zealand dollar and the Norwegian krone dropped more, losing 2.1% and 2.5%. The U.S. dollar gained 1.3%.