Canadian dollar slouched from a three-month high as traders bet the currency had moved too far, too fast after slower U.S. growth triggered the Federal Reserve to surprisingly maintain financial stimulus yesterday. The currency removed advances against its U.S. counterpart after breaking its 200-day moving average for a second day, a key test for some traders on whether the run of strength has momentum. U.S. government debt rose yesterday as the Fed continued its $85 billion in monthly asset purchases, kicking down borrowing costs and bolstering the interest-rate gap between Canadian and U.S. two-year government debt to the topmost since January. Economists in a Bloomberg survey had predicted the Fed to trim down $5 billion from its purchases. Yield Gap Canada’s benchmark 10-year bonds decline, with yields rising three basis points, or 0.03 percentage point, to 2.71 percent. The 1.5 percent security maturing in June 2023 dive down 23 cents to C$89.87. Declines in Canada’s two-year bond yields, generally more closely linked with short-term interest rate expectations, could not keep up with the drop in U.S. yields, widening the interest-rate premium on Canada’s securities to 92 basis points, the most since Jan. 21. Canadian two-year notes yielded 1.25 percent while their U.S. peers offered 0.33 percent. Futures on crude oil, Canada’s largest export, fell 1.8 percent to $106.28 per barrel and the Standard & Poor’s 500 Index of U.S. stocks dropped 0.2 percent after touching a record high yesterday. ‘Better Levels’ The currency’s failure to stay above the 200-day moving average today was due to Canadian companies that do business across the border taking the opportunity “to buy U.S. dollars at better levels than they’ve seen in three months,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada. “The 200-day is something that needs to be sustainably breached for a day or two, and we need to see a close below the 200-day as it applies as a momentum indicator,” Spitz said by phone from Toronto. Canada’s currency fell from a technical level that suggested a drop was in store. The loonie’s seven-day relative-strength index versus the greenback was at 67.4, down from 82.6 yesterday, above the 70 level some traders consider a sign an asset has moved too much, too quickly, and is about to change direction. “After the moves we’ve seen in the last 24 hours, there’s always a little bit of a scope for a pause for breath,” Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce, said by phone from London. “It’s probably a good opportunity to take a little bit of profit and pause for breath as markets recalibrate after the Fed surprise.” Stretch said his forecast for the loonie to fall to C$1.06 per U.S. dollar by year end may need to be revised to reflect a stronger Canadian currency. The loonie, has fallen 1.7 percent this year against nine developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index. The U.S. dollar has recorded a 2.1 percent increase.
