Canadian dollar drops to 7-week low on Bank of Canada, oil drop

The Canadian dollar fell to a seven-week low against its U.S. counterpart (FOREX:CADUSD) with the Bank of Canada embracing a more accommodative monetary policy and crude oil prices heading for the biggest weekly decline since June.

The currency weakened for a third day after the central bank on Oct. 23 dropped language about the need for future interest rate increases, repeated at every previous meeting since April 2012. The economic growth forecast for this year was cut to 1.6 % from 1.8 %. Crude oil, the nation’s largest export, touched the lowest level since June yesterday.

“The move we’ve seen in the Canadian dollar shows what a strong pillar of support this was for the loonie,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in a phone interview, referring to the central bank’s bias toward higher interest rates.

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell 0.3 % to C$1.0449 per U.S. dollar at 3:12 p.m. in Toronto after touching the weakest since Sept. 6. One loonie buys 95.71 U.S. cents.

Futures on crude oil rose 0.8 % to $97.90 per barrel in New York, paring the 2.8 % weekly loss. The discount Canada’s benchmark crude oil-grade, Western Canada Select, faced to West Texas Intermediate, its U.S. peer, was at $33 per barrel, almost the biggest gap in three weeks.

Market Trade

“Markets are trading with a mild risk-off bias and that may be translating into a little bit of caution on the commodity currencies,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit in Toronto, said by phone.

TD predicts the Canadian dollar will end the year at C$1.06 and will weaken to C$1.10 by late 2014, Osborne said.

Canada’s benchmark 10-year government bond rose, pushing the yield down one basis point, or 0.01 percentage points, to 2.41 %. The 1.5 % security maturing in June 2023 added nine cents to C$92.24.

The Bank of Canada’s policy statement prompted TD Bank to push back its forecast for the next rate rise to sometime in 2015 from two interest rate increases in 2014, while Royal Bank of Canada, the nation’s largest lender, updated its prediction to 2015, from the third quarter of 2014. The median estimate of 15 economists in a Bloomberg News survey conducted Oct. 23-24 targets a first quarter 2015 rate rise, a delay of three months from the previous consensus view in an Oct. 4-9 survey.

“The environment leaves the Canadian dollar exposed,” Sue Trinh, a senior currency strategist at RBC in Hong Kong, said in a research report. “Oil market dynamics remain unsupportive and the risks for the currency on this front are skewed to the downside.”

The Canadian dollar has fallen 4.1 % this year against nine developed nation currencies tracked by the Bloomberg Correlation-Weighted Index. The Australian dollar is down 7.2 %, and the U.S. dollar has added 1.6 %.

www.bloomberg.com

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