Canada’s Dollar Drops Against Australia’s As U.s. Shuts Down

Canada crude – Synthetic grades weaken on strong supply

One Canadian dollar buys 96.88 U.S. cents. Benchmark Bonds Canadas benchmark 10-year government bond fell, pushing the yield up two basis points to 2.56 percent. The price of the 1.5 percent security maturing in June 2023 slipped 14 cents to C$90.97. Implied volatility for one-year options on the Canadian dollar versus its U.S. counterpart rose to 7.1 percent, the highest on a closing basis since Sept. 16. Implied volatility is used to set option prices and gauge the expected pace of currency swings. The average for this year is 7.39 percent. Options traders touched the most bearish level on the Canadian dollar versus its U.S. peer in three weeks. The three-month so-called 25 delta risk-reversal rate, which measures the premium charged for the right to buy the U.S. dollar against its Canadian peer versus contracts to sell, reached 1.375 percent, matching yesterdays high, the most since Sept.

Forecasters in a Reuters poll conducted in August predicted the bank would begin raising rates in the fourth quarter of 2014. Canada recovered quickly from the 2008-09 recession, largely due to strong consumer spending and a housing boom. But with the household debt-to-income ratio at a record high because of low interest rates, policymakers are eager to see consumers take a backseat while businesses, particularly exporters, pick up the slack. The bank expects, in general, household and government spending combined to contribute about 1.5 percentage points of growth. To reach the targeted 2.5 percent growth, net exports and investment would need to contribute at least 1 percentage point. “That means together exports and investment need to grow by at least about 4 percent after taking into account their import content,” Macklem said. In the past year, net exports and investment in fact contributed nothing to growth, he said. IMPACT OF U.S. SHUTDOWN On the economic impact on Canada of the U.S. government shutdown after lawmakers failed to agree on a budget, Macklem said: “The short answer is the uncertainty that this ongoing brinkmanship is bringing is not helpful.” The impact will be relatively small if the shutdown is short-lived, he said, but a longer paralysis like the one in 1995-96 could have more serious implications. “If you look at the market response you can see today it’s relatively muted, which means the market is assuming, hoping this will be relatively short-lived,” he said. “Certainly if it does last a long time.

UPDATE 2-Bank of Canada cuts Q3 growth forecast as exports sluggish

Light synthetic crude from the oil sands for November delivery last traded at $10.50 per barrel below the West Texas Intermediate benchmark, according to Shorcan Energy brokers. That compares with a settlement price of $7.00 per barrel below WTI on Monday, and was the lowest level since the first quarter of 2012, according to Reuters data. Traders in Calgary said healthy supply from Syncrude’s northern Alberta oil sands project was weighing on prices. “There’s too much production and not enough pipelines,” said one Calgary crude trader, referring to the congested export network which can leave oil bottlenecked in Canada. Suncor Energy Inc shut down a 32,000 barrel-per-day hydrocracker unit at its 85,000 bpd refinery in Sarnia, Ontario, after a small fire broke out. BP Plc’s joint-venture 135,000 bpd Toledo refinery was reported last week to be running at reduced rates. Canadian crude prices historically weaken in the fourth quarter of each year as a result of reduced demand in winter. Western Canada Select heavy blend for November delivery was steady at $31.90 per barrel below WTI, unchanged from Monday’s settlement price. The differentials on Canadian heavy grades have also widened steadily since the summer. BP’s 405,000 bpd Whiting, Indiana, refinery has been undergoing a revamp to enable it to run more heavy Canadian crude, but problems with the construction of a coking unit means the work could continue past the end of 2013.