Canada’s dollar trades at almost 3-year low on Fed taper bets

The Canadian dollar traded at almost a three-year low amid speculation Federal Reserve officials may signal the central bank will slow its monetary stimulus program as soon as next week.

The currency weakened against most of its major peers as data showed the pace of Canadian new-home construction slowed in November. St. Louis Fed President James Bullard said in a speech the odds of slowing the central bank’s $85 billion of monthly bond-buying have risen, and Dallas Fed President Richard Fisher said tapering the purchases needs to begin soon and done on a “well-defined calendar.”

“The Fed calls for tapering sooner are strengthening the dollar across the board,” said Chris Gaffney, co-chief investment officer at EverBank Wealth Management, by phone from St. Louis. “It’s wait and see, as with most of the markets, but with a bias toward selling.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, was little changed at C$1.0643 per U.S. dollar at 2:40 p.m. in Toronto after falling as much as 0.3%. It touched C$1.0708 on Dec. 6, the weakest since May 2010. One loonie buys 93.95 U.S. cents.

Futures on crude oil, Canada’s largest export, fell 0.3% to $97.41 a barrel in New York after six days of gains. The Standard & Poor’s 500 Index of U.S. stocks rose 0.2%.

Bonds Rise

Canada’s benchmark 10-year government bond gained, with yields falling one basis point, or 0.01 percentage point, to 2.67%. The 1.5% security maturing in June 2023 added 12 cents to C$90.25.

The cost to insure against declines in the loonie versus its U.S. counterpart fell to the lowest in three weeks, with the three-month 25-delta risk-reversal rate dropping to 1.10%. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

The share of economists predicting the Fed will reduce bond buying in December doubled after a government report showed U.S. employers added 203,000 jobs last month and the unemployment rate reached a five-year low of 7%..

The Federal Open Market Committee will probably begin reducing monthly bond purchases at a Dec. 17-18 meeting, according to 34% of economists surveyed Dec. 6 by Bloomberg, an increase from 17% in a Nov. 8 survey. In November, 53% predicted a tapering in March, compared with 40% in yesterday’s poll of 35 economists.

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