Canada's Dollar Falls From Record High Amid Subprime Loan Woes
By Haris Anwar
Nov. 7 (Bloomberg) -- Canada's dollar fell from a record high as concern increases that forecasts of deeper U.S. mortgage-related losses will slow global growth.
The currency weakened 0.9 percent, the most since Oct. 22, to 92.85 Canadian cents at 4:22 p.m. in Toronto. It reached 90.58 cents earlier, the strongest since Canada first allowed the currency to float in 1950.
Federal Reserve Bank of St. Louis President William Poole said a slump in housing may make further interest-rate cuts necessary. U.S. banks and brokers may face another $100 billion of writedowns on hard-to-value securities, according to Royal Bank of Scotland Group Plc. Former Federal Reserve Chairman Alan Greenspan said the effects of a subprime mortgage crisis may be felt in Europe and Canada, and in Japan ``indirectly.''
Traders are taking ``profit off the table'' after more than 5.6 percent gains since Oct. 24, said Firas Askari, head trader at BMO Capital Markets in Toronto. ``There are also many recommendations to buy the Australian dollar,'' against the Canadian currency.
Traders sold the Canadian dollar amid calls by some currency strategists that the recent rally has been ``overextended,'' and the currency was too expensive.
Canada's dollar is the top performer against the U.S. dollar among the 16 most-traded currencies, gaining 27 percent this year. U.S. subprime losses also prompted investors to sell equities globally with the Standard & Poor's/TSX Composite Index falling 1.8 percent.
Paring `Risky Trades'
``The weaker equities are trimming the Canadian dollar's gains,'' said Shaun Osborne, chief currency strategist at TD Securities in Toronto. ``Traders are paring back risky trades.''
The Canadian dollar's climb to a record high this month has pushed it about 10 percent above its ``fair value,'' according to currency analysts at JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and Morgan Stanley.
The Canadian currency surged this year as investors bet demand for the nation's commodity exports will keep the economy expanding.
Executives at Detroit-based General Motors Corp., Calgary- based Enbridge Inc. and Montreal-based Domtar Corp., said the strengthening Canadian currency was hurting their profits.
``The rapid increase in the value of the Canadian dollar has negatively impacted the earnings contribution from our U.S. operations,'' Enbridge's Chief Executive Officer Pat Daniel said today in a conference call with analysts. Calgary-based Enbridge, Canada's largest pipeline company by revenue, said today third-quarter profit fell 18 percent partly on the rise of Canada's currency against the dollar.
The yield on the benchmark 10-year bond fell 4 basis points, or 0.04 percentage point, to 4.27 percent. The price of the 4 percent security maturing in June 2017 rose 33 cents to C$97.890. Bonds yields move inversely to prices.
