The loonie, as the currency is known for the image of the waterfowl on the C$1 coin, depreciated today as crude oil fell and India’s central bank unexpectedly increased interest rates. The currency earlier reached C$1.0062, the strongest level since July 23, 2008, after a Statistics Canada report showed consumer prices gained more than forecast last month.
“The market now believes that there will be a forceful move on rates sooner rather than later,” an analyst in Toronto at the online currency-trading firm Oanda Corp. The currency’s decline “will be seen as an opportunity to only add to longer-term investors’ positions.”
The Canadian dollar declined 0.3 percent to C$1.0170 in Toronto at 4:45 p.m., from C$1.0141 yesterday. One Canadian dollar buys 98.33 U.S. cents. Since March 12 the currency has appreciated 0.2 percent.
The Standard & Poor’s 500 Index today fell 0.5 percent and the S&P/TSX Composite Index dropped 0.8 percent. Crude oil fell 1.9 percent. The loonie tends to track movements in stocks and commodities.
Canada’s dollar rose to parity with the greenback in September 2007 for the first time in three decades amid booming demand for raw materials. It was last at parity on July 22, 2008, and then lost 18 percent that year as the credit crisis crushed demand for commodities.
Commodity-linked currencies such as the Canadian and Australian dollars declined after India’s central bank lifted interest rates for the first time since July 2008, stoking concern that withdrawal of economic stimulus measures may hamper global growth.
‘Markets Risk-Off’
“The reason all the markets are risk-off in general today is because the Reserve Bank of India unexpectedly tightened monetary policy,” head of market analysis at Schneider Foreign Exchange in London. “Canada is doing less well than it was vis-a-vis the dollar but it is holding its own, supported by the CPI numbers this morning and the Bank of Canada.”
The Australian dollar fell 0.5 percent against the greenback, while the New Zealand dollar, another currency tied to growth expectations, fell 0.8 percent.
Canada’s dollar surged earlier as consumer prices advanced 0.4 percent in February after a 0.3 percent increase in the prior month. The median forecast of economists in a Bloomberg News survey was for a 0.3 percent increase.
Rate Expectations
“This morning’s high-side surprise in the inflation numbers is ramping up rate hike expectations,” a Montreal-based trader of interest-rate derivatives at brokerage Le Groupe Jitney Inc.
The yield on the December 2010 bankers’ acceptances contract jumped as much as 15 basis points to 1.63 percent, the highest since Jan. 8. Money managers and hedge funds use the contracts to bet on changes in interest rates and manage their exposure. The contracts have settled at an average of 17 basis points above the central bank’s overnight rate since Bloomberg started tracking the gap in 1992.
The Bank of Canada said on March 2 that inflation and economic output have been higher than policy makers expected, signaling rate increases in coming months. Today’s data may intensify calls for tighter monetary policy.
Government Bonds
Canada’s dollar will weaken to C$1.05 by the end of the year, according to the median forecast of economists and analysts surveyed by Bloomberg News. Royal Bank of Canada, the nation’s largest lender, sees it advancing through parity by the end of June before retreating to C$1.02 by year-end.
Canada’s government bonds declined. The two-year note’s surged seven basis points, or 0.07 percentage point, to 1.64 percent. The price of the 1.5 percent security maturing in March 2012 dropped 14 cents to C$99.75.
Canada’s government bonds of one- to three-year duration have made investors 0.5 percent this year, according to a Bank of America Merrill Lynch index.
