Interest rates in the U.S. will likely rise as the bond purchases slow, increasing the allure of the U.S. dollar versus its peers.
“We know we’re approaching that all-important taper, and I think the market is reacclimatizing -- the Canadian dollar was so overbought,” said Eimear Daly, a currency market analyst at Monex Europe Ltd., by phone from London. “Basically people are just moving out of CAD and moving back into USD because the Canadian dollar is losing that higher yield advantage.”
Canadian housing starts were 192,235 at a seasonally adjusted annual pace in November, Ottawa-based Canada Mortgage & Housing Corp. said on its website today. That’s down from a revised 198,200 the prior month, and compares with the 195,000 estimate by 13 economists in a Bloomberg survey.
The Canadian dollar has declined 4.3% this year against nine developed market currencies tracked by the Bloomberg Correlation Weighted Index. The other currencies that have lost value are the Australian dollar, the yen and the Norwegian krone. The U.S. dollar has gained 3.4%.
“With payrolls being plus-200,000 last Friday, the bar has been raised on the 18th of December for the start of tapering,” Jack Spitz, managing director of foreign exchange at National Bank of Canada, said by phone from Toronto. “It will put a bid to the U.S. dollar across the board. And, for Canada, it consolidates the bid against the Canadian dollar.”
The St. Louis Fed’s Bullard, who votes on Fed policy this year, said a reduction in bond purchases should be modest because inflation is low. He spoke in St. Louis.
Fisher spoke in Chicago.