Canada dollar falls vs. major peers before Fed tapering call

‘Tempered’ Excitement

“The market has been quite excited recently that central banks could be hiking in 2014,” Jane Foley, senior currency strategist at Rabobank International, said by phone from London. “Downward revisions of growth have tempered that and diluted the loonie’s rise.”

The Bank of Canada has cautioned for more than a year that its next move will be to raise interest rates as a quickening recovery takes up slack in the economy and lifts inflation. The country should expect “a gradual normalization of policy interest rates,” Poloz said Sept. 4.

Economists predict the central bank will raise its policy rate to 1.5% by the end of 2014, from 1% now, according to the median of 19 forecasts in a Bloomberg News survey conducted this month.

Fed Tapering

In a separate survey, 33 of 64 economists predict the Fed will reduce its $45 billion in monthly Treasury purchases by $5 billion or less, with 31 forecasting a cut of $10 billion or more. It also buys $40 billion in mortgage-backed bonds a month. Chairman Ben S. Bernanke will hold a press conference at 2:30 p.m.

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, rose to 1.35%, the highest in almost two weeks. The measure rose to 1.64% on Aug. 23, the highest level on a closing basis since July 2. The 2013 average is 1.26%.

The loonie fell 2.9% in the past year against nine other developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index, making it the third-worst performer. The yen lost 20%, and the Australian dollar slipped 8.7%. The U.S. dollar rose 3.4%.

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