2013.06.2504:46:59UTC+00Canadian Dollar reaches almost 2 year low after breaching levels

The Canadian dollar fall down beyond C$1.05 per U.S. dollar to reach its worst level in almost two years on bets the U.S. currency will strengthen when the Federal Reserve ends financial stimulus.

Fed Comments

Investors shouldn’t overreact to the U.S. central bank’s plans to slow down the pace of asset purchases, Fisher said in an interview with the Financial Times published today on its website. Investors behaved like “feral hogs” after the June 19 comments by Bernanke, he said, according to the newspaper.

Price Swings

Implied volatility for three-month options on the Canadian dollar versus its U.S. counterpart traded at 8.87 percent, the highest point in a year. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings.

The 14-day relative strength index versus the greenback fell to 29.92 percent, less than the 30 percent level some traders see as a sign an asset has weakened too quickly.

Technical Levels

The cost to insure the Canadian dollar against declines versus its U.S. counterpart fell from its highest point in almost a year. The one-month so-called 25-delta risk reversal rate fell to 1.7900, after reaching 1.8550 June 21, the highest since July 2012. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

The Canadian dollar has fallen along with the currencies of fellow commodity exporters in the past month against a basket of nine developed nation currencies tracked by the Bloomberg Correlation-Weighted Index. The loonie weakened 1.2 percent while the Australian and New Zealand dollars lost 3.9 percent and 4 percent, respectively. The U.S. dollar has gained 0.8 percent.