31.07.201307:19:43UTC+00Canadian Dollar dive down from month high before fed stimulus update

The Canadian dollar dropped down from its topmost level in a month on speculation Federal Reserve policy makers may provide clues tomorrow about when the U.S. central bank plans to slow financial stimulus.

The currency retreated versus the majority of its most-traded counterparts as the Fed is forecast to leave the benchmark interest rate at zero to 0.25 percent and continue its $85 billion per month bond-purchasing program. OAO Uralkali, the world’s biggest potash producer, ended limits on production that have underpinned prices for Canada’s exports of the commodity. A report tomorrow will display Canada’s gross domestic product bolstered 0.3 percent in May compared with 0.1 percent the previous month.

Bond Yields

Canada’s 10-year benchmark government bonds fell, pushing the yield up two basis points, or 0.02 percentage point, to 2.51 percent. The 1.5 percent security maturing in June 2023 fell 15 cents to C$91.24. Yields have added seven basis points in the past month.

Technical Levels

A technical measure approached levels that would indicate the loonie has appreciated too far too fast. The 14-day relative strength index for the Canadian dollar against its U.S. counterpart touched 61.3, almost the 70 level that some traders take as a signal a move is about to reverse course.

“The Fed will eventually start to pull back on their program and the Canadian dollar will weaken off,” said Blake Jespersen, managing director of foreign exchange at Bank of Montreal, by phone from Toronto. “Our bias is to look for good opportunities to sell the Canadian dollar on rallies.”

Jespersen recommended waiting until the loonie strengthens to C$1.0180 per U.S. dollar before selling.

The loonie has climbed 0.7 percent in the past month versus nine other developed nation currencies tracked by the Bloomberg Correlation Weighted Index. The U.S. dollar has relinquished 1.5 percent.