The FINANCIAL — Canada's dollar dropped on eroded demand for riskier assets as Europe's sovereign-debt turmoil caused the region's bond yields to rise.
The Canadian currency touched a five-week low versus the US dollar after crude oil, Canada's biggest export, had its first weekly decline since September. Canada's retail sales rose for a second month, the government statistics agency is forecast to report this week after figures showed consumer prices increased more than forecast.The loonie, as the currency is also known, depreciated 1.7 per cent to C$1.0276 per US dollar in Toronto. It slid on Friday to C$1.0302, the weakest level since October 12, before advancing. The currency, the seventh-most-traded, is headed for a 2.6 per cent loss in November.
Implied volatility for three-month options on the Canadian dollar versus the greenback fell on Friday to as low as 12.66 per cent, the least since November 9, on speculation European Central Bank buying of Spanish and Italian bonds will stem surging borrowing costs in the region. Implied volatility, which traders quote and use to set option prices, signals the expected pace of swings in the underlying currency.
Officials may start talks on a mechanism for the European Central Bank to lend to the International Monetary Fund for sovereign bailouts in the region, Dow Jones Newswires reported on Friday. Agreement on the proposal may result in an announcement at a European Union summit on December 9, the news agency reported, citing two unidentified people with direct knowledge of the matter.
The Canadian dollar rallied against the currencies of fellow commodity producers including the Australian dollar and Norwegian crown as Canada reported October inflation that was higher than economists' median forecasts.Consumer prices rose 0.2 per cent in October, matching the previous month's increase, Statistics Canada said on Friday in Ottawa. The median forecast of 24 economists in a Bloomberg News survey was for a 0.1 per cent advance.
The consumer price index climbed 2.9 per cent from a year earlier, compared with a 3.2 per cent pace in September and a May peak of 3.7 per cent.
Bank of Canada Governor Mark Carney has said that he has "flexibility" in how soon he meets the bank's 2 per cent inflation target during the economic recovery. Policymakers have kept the key lending rate at 1 per cent since September 2010, and a decision on October 25 removed a reference to the need to reduce monetary stimulus.Canadian government bonds were little changed, with the benchmark 10-year yield down less than one basis point, or 0.01 percentage point, to 2.12 per cent. It decreased to a record low 1.99 per cent on October 4. The price of the 3.25 per cent securities maturing in June 2021 rose 2 cents to C$109.67.
The nation's government debt has returned 8.1 per cent this year, the most since the financial crisis in 2008, according to a Bank of America Merrill Lynch index.
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