Canada exporters on sidelines as C$ sinks, eye weaker levels: dealers

Mon Jan 11, 2016 3:04pm EST
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By Fergal Smith

TORONTO (Reuters) - Canadian exporters are holding off using their earnings to buy Canadian dollars or lock in hedges as the currency hits 12-year lows, betting it can weaken even further, foreign exchange dealers say.

The Canadian currency has plunged about 36 percent against the U.S. dollar since November 2007, hitting a low of C$1.4245, or 70.20 U.S. cents, on Monday. Most of that move has come since mid-2014, when the price of crude oil, one of Canada's major exports, began its sharp sell-off.

In a sign of deteriorating sentiment, dealers say exporters who were waiting for the currency to cross C$1.40 now sense additional weakness is in store, given uncertainty about China, even lower crude oil and financial market volatility.

"Greed breeds inaction," said Michael Goshko, corporate risk manager at Western Union Business Solutions.

The speed of the move has "pushed corporate Canada to the sidelines," said Brad Schruder, director of foreign exchange at BMO Capital Markets.

Resource sector clients have scaled back hedging -- bets to reduce their exposure -- as the weaker Canadian dollar offsets the reduced value of the commodities they produce, according to George Davis, chief technical strategist at RBC Capital Markets.

Davis expects a move to between C$1.42 and C$1.45 to encourage more exporters to hedge.

But dealers warn that a near-term reversal in the currency could be followed by a burst of buying. Davis said a recovery toward C$1.3450 may spur a rush of orders from exporters who fear that the weakest levels have been missed.   Continued...

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. .   REUTERS/Mark Blinch