Canadian Dollar Moves Lower After US Trade Gap Improves

By David George-Cosh

August 6, 2013

TORONTO–The Canadian dollar was slightly lower Tuesday as stronger U.S. trade data for June weakened the loonie and pulled traders toward the U.S. dollar.

The U.S. dollar was at C$1.0376 Tuesday, from C$1.0360 late Monday, according to data provider CQG.

The loonie meandered within a narrow range for much of Tuesday’s session.

It found some direction early Tuesday as U.S. trade data for June showed exports rose by 2.2% to $191.17 billion in June from May, the most in almost a year. The U.S. trade gap fell more than 22% during the month, to $34.2 billion from $44.1 billion.

In Canada, the trade deficit unexpectedly narrowed in June, moving to 469 million Canadian dollars ($451.4 million), from a revised C$781 million in May. Economists expected the trade deficit to widen to C$560 million in the month.

“The underlying story is that more good data from the U.S. has been weighing on people’s expectations that [the Federal Reserve] is going to start tapering,” its bond-buying program, said Scott Smith, senior corporate FX trader for Cambridge Mercantile Group in Calgary.

“That’s put pressure on high-yield currencies and the Canadian dollar to some extent,” he said.

Still, the Canadian currency had limited reaction to remarks from Federal Reserve Bank of Chicago President Charles Evans, a voting member of the Federal Open Market Committee.

Mr. Evans stated he wouldn’t “rule out” that the Fed may begin to retreat from its $85 billion monthly bond buying program as early as next month following the Fed’s meeting.

The loonie’s muted reaction could also be a result of a lack of liquidity in the market during the so-called “summer doldrums,” said Mr. Smith.

“You can see volumes aren’t really there and the volatility index is around its lowest readings in months,” he said. “That’s definitely weighing on markets.”