Bloomberg News

Canadian Dollar Declines on Federal Reserve’s U.S. Economic View

June 08, 2011

June 8 (Bloomberg) -- Canada’s dollar fell after the Federal Reserve said the economy slowed in four of 12 regions of the U.S., the nation’s biggest trading partner.

The loonie, as the currency is also known for the image of the aquatic bird on the C$1 coin, dropped earlier as Fed Chairman Ben S. Bernanke said yesterday the U.S. recovery is “frustratingly slow.” The Canadian currency fell the most against the yen today.

“Certainly things look pretty bleak in the U.S. right now, so that’s not good for Canada,” said Steve Butler, managing director of foreign-exchange trading in Toronto at Bank of Nova Scotia’s Scotia Capital unit. “We’ve seen Canada suffering when the U.S. economy tanks, and that’s having an effect right now on the currency.”

The Canadian currency depreciated 0.5 percent to 97.93 versus the greenback at 5 p.m. in Toronto, from 97.45 yesterday. The loonie earlier slid as much as 0.8 percent. One Canadian dollar buys $1.0211.

The loonie fell after the Fed’s Beige Book showed reports from district banks “indicated that economic activity generally continued to expand since the last report, though a few districts indicated some deceleration.”

U.S. Direction

The U.S. economy slowed in four of 12 regions as consumers contended with higher food and fuel prices while shortages of parts reduced auto production, the Fed reported.

Bernanke said yesterday in Atlanta that the pace of U.S. recovery warrants sustained monetary stimulus while predicting that growth will gain speed in the second half of the year.

Canadian bonds rose, pushing the yield of two-year securities down two basis points, or 0.02 percentage point, to 1.43 percent. The 1.75 percent security that will expire in March 2013 added 3 cents to C$100.55.

The government sold C$1.4 billion ($1.4 billion) of 30-year debt, drawing an average yield of 3.515 percent. The government received bids of C$3.3 billion for the 3.5 percent securities maturing in December 2045.

The loonie pared its losses earlier today as crude oil rose after Organization of Petroleum Exporting Countries Secretary General Abdalla el-Badri said in Vienna there was no consensus on the group’s production limits, which have remained unchanged since 2009.

Oil Link

“The correlation between oil and the loonie is still strong,” said Rahim Madhavji, president and head trader at Knightsbridge Foreign Exchange in Toronto. “OPEC hasn’t changed their production. Oil prices are higher, and that bodes well for the loonie.”

Futures on crude oil, Canada’s biggest export, increased 1.8 percent to $100.82 a barrel in New York after falling as much as 1.1 percent.

Canada’s dollar gained the most against the Norwegian krone among major currencies, increasing 0.7 percent. It dropped 0.7 percent to 81.58 yen. The loonie slid earlier today as much as 1.2 percent against the yen to 81.23, the lowest level since March 18. Canada’s dollar strengthened 0.2 percent against the euro after earlier touching its lowest level since March 2010.

The European shared currency may weaken to C$1.3865 against the loonie within the next two weeks and may fall to C$1.3570 during the next couple of months, according to a technical analysis by Lloyds Banking Group Plc today.

Canada’s housing starts advanced to 183,600 in May from 178,700 in the previous month, Canada Mortgage and Housing Corp. reported today. The median forecast of 21 economists in a Bloomberg News survey was for an increase to 182,000 from a previously reported 179,000.

The loonie weakened before a Statistics Canada report on June 10 that’s forecast to show Canadian employers added 20,000 jobs to payrolls in May after a gain of 58,300 in the previous month. The unemployment rate may have stayed at 7.6 percent.

“That’s actually going to be a big test for the market,” said Boris Schlossberg, director of research at the online trader GFT Forex in New York. “The employment report could have a meaningful impact if it deviates a lot from expectations.”

--Editors: Dennis Fitzgerald, Paul Cox

To contact the reporter on this story: Cecile Vannucci in New York at cvannucci1@bloomberg.net.

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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