Canadian dollar falls to lowest in 3 years on rate-cut wagers

Canada’s dollar fell to the lowest level in three years as central-bank Governor Stephen Poloz warned of the risks of low inflation, spurring speculation interest-rate cuts may be considered.

Canada’s dollar touched C$1.07 as it declined for a fourth day against its U.S. peer after a private report showed American companies boosted payrolls more than forecast in November. The data added to bets the Federal Reserve will cut asset purchases as soon as this month, even as Poloz in Ottawa said in a statement “the substantial monetary policy stimulus currently in place remains appropriate” as he kept interest rates unchanged.

“The combination of both central banks and the data today is certainly something that would drive a weaker Canadian dollar,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia, said by phone from Toronto. “If we have a Fed that begins to taper earlier than what’s priced in -- because, right now with the bond-buying program, it’s U.S. dollar negative -- so if we have that pulled in, it turns increasingly U.S.-dollar positive.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, slipped 0.3% to C$1.0679 per U.S. dollar at 4:05 p.m. in Toronto. It reached C$1.0707, the lowest level since May 2010. One loonie buys 93.64 U.S. cents.

Bonds, Oil

Canada’s benchmark 10-year government bond fell, with yields rising six basis points, or 0.06 percentage point, to 2.64%. The 1.5% security maturing in June 2023 lost 45 cents to C$90.48.

Futures on crude oil, Canada’s biggest export, rose for the fourth straight day, touching $97.58 per barrel, its highest point since Oct. 30.

The cost to insure against declines in the loonie versus its U.S. counterpart fell the most since Nov. 18, with the three-month 25-delta risk-reversal rate dropping four basis points, or 0.04 percentage point, to 1.39%. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

Technical signals are building the Canadian dollar has fallen too far too fast against the greenback.

The loonie’s 14-day relative strength index against the greenback fell to 25.3, below the 30 threshold which may indicate the currency’s decline is losing momentum. It also traded below its lower 30-day Bollinger band, another technical indicator that signals prices may have fallen too far, too fast.

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