Thursday, 28 February 2013

Canada Dollar Falls on Speculation GDP Contracted

By Ari Altstedter - Feb 28, 2013 10:38 PM GMT+0400

The Canadian dollar weakened to lowest level in eight months as the nation’s trade deficit narrowed less than forecast, adding to speculation a report tomorrow will show the economy contracted in December.
The currency fell against the majority of its most-traded peers after a report showed economic growth in the U.S., Canada’s largest trading partner, was less than forecast in the fourth quarter. Canadian gross domestic product shrank 0.2 percent in December, resulting in fourth quarter growth holding steady at 0.6 percent, according to the median estimates of two Bloomberg News surveys.
Feb. 27 (Bloomberg) -- David Bloom, global head of currency strategy at HSBC Holdings Plc, talks about the possible impact of a faster U.S. economic recovery on Group-of-10 and emerging-market currencies. He spoke with Bloomberg's Niki O'Callaghan in London on Feb. 21. (Source: Bloomberg)
“The weakness was largely drive off the disappointment from the GDP data in the U.S. coming out much softer than expected,” said Mazen Issa, Canada macro strategist at Toronto- Dominion Bank’s TD Securities, by phone from Toronto. “Heading into the release tomorrow the dollar’s decline today certainly reinforces the theme of universal softness in tomorrow’s GDP report.”
The loonie, as the Canadian dollar is known for the image of the water fowl on the C$1 coin, fell 0.6 percent to C$1.0293 perU.S. dollar at 1:30 p.m. in Toronto. The currency earlier reached C$1.0309, its lowest since June 29. One loonie buys 97.15 U.S. cents.
The currency is down 3.1 percent in February, on pace for a second consecutive monthly decline and the biggest drop since May.
Canada’s benchmark 10-year bond rose, with yields falling two basis points, or 0.02 percentage point, to 1.85 percent. The 2.75 percent security maturing in June 2022 gained 14 cents to C$107.64.

Relative Strength

A technical measure has suggested the loonie will soon reverse direction for the last seven trading days. The 14-day relative strength index against the U.S. dollar has been below 30 percent since Feb. 20. The measure is at 29.4 percent today.
The nation’s trade deficit shrank to C$17.3 billion ($16.9 billion) in the fourth quarter, compared to the C$17 billion deficit forecast in the median of Bloomberg survey of 18 economists.
“We have expectation building into tomorrow’s expectedly weak Canadian data development,” said Greg T. Moore, a currency strategist at Toronto-Dominion Bank (TD), in phone interview from Toronto. “We had the current account data miss expectations and that’s certainly not positive.”
Industrial production in Canada was flat in January, according to a separate report fromStatistics Canada, missing the 0.3 percent growth forecast in the median of a Bloomberg survey of 11 economists.

12-Month Decline

The U.S. economy barely expand in the fourth quarter, erasing a previously estimated contraction, with 0.1 percent annual growth, figures up from a previously estimated 0.1 percent drop, according to Commerce Department data.
The loonie has fallen 1.5 percent this year among the 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index. The greenback gained 2.5 percent and the Japanese yen lost 4.7 percent.
“We’ve got the GDP data tomorrow and the Bank of Canada next week, so I think what we’ve got in general is a market that is relatively cautious to the Canadian dollar,” said David Watt, chief economist at the Canadian unit of HSBC Holdings Plc, by phone from Toronto.
The next Bank of Canada interest-rate decision will take place on March 6.
To contact the reporter on this story: Ari Altstedter in Toronto at
To contact the editor responsible for this story: Dave Liedtka at