Dollar drops from 4-month high as Treasury yields pare gains

Loonie Trading

The Canadian dollar weakened to C$1.10 for the first time in more than four years amid signals that the Bank of Canada will continue to provide monetary stimulus as the Fed slows its own. The loonie fell 0.2% to C$1.0975 after touching C$1.1019, the lowest since September 2009.

The U.S. dollar-Canadian dollar was the most heavily traded pair today as over-the-counter foreign-exchange options totaled $71 billion, from $39 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the greenback- loonie exchange rate amounted to $15 billion, the largest share of trades at 21%. Options on the dollar-yen rate totaled $12 billion, or 17%.

U.S. dollar-Canadian dollar options trading was 259% more than the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis. Greenback-yen options trading was 12% above average.

Fed Bets

The Bloomberg Dollar Spot Index gained this year against all but three major currencies before the Fed begins a two-day policy meeting on Jan. 28 at which it may decide to continue tapering stimulus. Policy makers at their previous gathering on Dec. 18 decided to cut monthly bond buying to $75 billion from $85 billion beginning this month.

They will reduce purchases by $10 billion at each meeting to end the program this year, according to economists in a Bloomberg survey conducted Jan. 10.

The Markit Economics preliminary index of U.S. manufacturing climbed to 55 this month from 54.4 in December, according to the median estimate of analysts surveyed by Bloomberg News before the figure is published on Jan. 23. The National Association of Realtors may say on the same day sales of previously-owned homes climbed 1% last month after a 4.3% drop in November.

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