Canada’s dollar fell versus most major counterparts as futures of crude oil, the nation’s largest export, touched the lowest level in more than five months.

The currency weakened from yesterday’s one-week high versus the U.S. dollar before data due Nov. 22 that’s forecast to show inflation fell in October. The greenback slid amid concern more Federal Reserve policy makers today including Chairman Ben S. Bernanke may say economic growth in America, Canada’s biggest trade partner, isn’t strong enough. The discount Canadian oil producers face versus U.S. benchmark prices widened.

“I don’t think it’s coincidental that you’re seeing oil at one of its worst levels in a while,” said Brad Schruder, director of foreign exchange at Bank of Montreal, said by phone from Toronto. “Outside of any correlated factors, what you’re looking at here is just a little bit of profit-taking. Canada did very well in the last couple of days, the movement has been very profitable if you got in at the right time.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, depreciated 0.1 percent to C$1.0443 per U.S. dollar at 10:34 a.m. in Toronto. It touched C$1.0415 yesterday, the strongest since Nov. 7. One loonie buys 95.76 U.S. cents.

Implied volatility for three-month options on the U.S. dollar against its Canadian counterpart fell to 5.53 percent, the lowest intraday level since Oct. 23. The measure is used to set option prices and gauge the expected pace of currency swings. The 2013 average is 6.68 percent.

Canada’s government bonds fell, pushing the yield on the benchmark 10-year security up two basis points, or 0.02 percentage point, to 2.55 percent. The price of the 1.5 percent debt maturing in June 2023 lost 18 cents to C$91.21.

Futures of crude oil fell as much as 0.6 percent to $92.43 per barrel in New York, the lowest level since June 4, before trading little changed at $93.06.

The discount applied to the benchmark Western Canada Select crude oil grade compared with its U.S. counterpart swelled to $37 a barrel after reaching a November low of $34.25 on Nov. 15.

The loonie remained weaker after the Organization for Economic Cooperation and Development said the Bank of Canada will probably raise its benchmark lending rate at the end of next year to avoid a build-up of inflation.
The first increase in the 1 percent rate since 2010 is projected to be in the fourth quarter of 2014, with the central bank raising it to 2.25 percent by the end of 2015, the OECD said in its world economic outlook released today.

“With spare capacity narrowing by the end of 2015, monetary-policy tightening may need to begin by late 2014 to avoid a buildup of inflationary pressures,” the Paris-based organization said in the report.

Investors have been paring bets on higher borrowing costs after central-bank Governor Stephen Poloz on Oct. 23 unexpectedly dropped policy language in place for more than a year about the need to raise interest rates. He cited greater slack in the economy.

“They’re obviously seeing something no one else is seeing in the marketplace,” said Dean Popplewell, head analyst at the online currency-trading firms Oanda Corp., by phone from Toronto. “Growth is tenuous at best, and employment is even more suspect, and that’s not just in the U.S., that’s in North America and Europe.”

Consumer prices in Canada rose 0.9 percent on an annualized basis in October, below the Bank of Canada’s 1 percent to 3 percent target band, economists surveyed by Bloomberg survey forecast before this week’s report.

Fed Chairman Ben S. Bernanke is scheduled to speak to the National Economics Club in Washington at 7 p.m.

Vice Chairman Janet Yellen told U.S. lawmakers Nov. 14 at a hearing on her nomination to run the central bank that the American economy and labor market are performing “far short of their potential.” She said she’s committed to promoting a strong recovery and will ensure that monetary stimulus isn’t removed too soon.

The Canadian dollar declined 1.6 percent in the past three months against nine other developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index. Australia’s dollar gained 3.3 percent, and the British pound increased 2.7 percent. The U.S. dollar fell 0.6 percent.
Source: Bloomberg

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