Bloomberg News

Canadian Dollar Drops as Oil, Stocks Fall on Economic Slowdown

June 10, 2011

June 10 (Bloomberg) -- Canada’s dollar fell against its U.S. counterpart on concern the global economy is slowing, even as a government report showed Canada’s jobless rate unexpectedly fell in May to the lowest level since January 2009.

The loonie, as the currency is known for the image of the aquatic bird on the C$1 coin, also dropped as oil, Canada’s biggest export, and stocks fell.

“Even though the number this morning was a little bit stronger, especially in the full-time component, I don’t think it changes what’s going on as far as everything else,” said David Love, a trader of interest-rate derivatives at Le Groupe Jitney Inc. in Montreal. “All our eyes are on the U.S. and what’s going on in Europe.”

The loonie depreciated 0.7 percent to 97.99 cents versus the U.S. currency at 5 p.m. in Toronto, from 97.30 cents yesterday. One Canadian dollar buys $1.0205.

The Standard & Poor’s 500 Index dropped 1.4 percent after adding 0.7 percent yesterday, its first gain after six consecutive days of losses. Crude oil for July delivery decreased 3 percent to $98.85 a barrel in New York after rising 1.2 percent yesterday.

“Canada’s ties to commodities certainly point to a weaker loonie, despite the stronger employment number this morning,” said Dean Popplewell, an analyst at the online currency-trading firm Oanda Corp. in Toronto.

Cross Trades

Among its most-traded counterparts, the Canadian dollar fell the most against the yen, dropping 0.8 percent. The loonie gained against the euro for a third consecutive day, advancing 0.4 percent to C$1.4059.

The loonie strengthened earlier today after a Statistics Canada report showed the nation’s unemployment rate fell to 7.4 percent last month from 7.6 percent in April.

Employers added 22,300 jobs last month after an increase of 58,300 in April. The median forecast of 27 economists in a Bloomberg News survey was for a gain of 20,000.

“From the economic side, I’m not seeing this as a huge jump, but it definitely is positive,” said C.J. Gavsie, managing director for foreign-exchange sales at Bank of Montreal’s BMO Capital Markets unit in Toronto.

Government bonds rose, pushing the yield on the 10-year benchmark security down three basis points, or 0.03 percentage point, to 3 percent. The 3.25 percent note that expires in June 2021 added 25 cents to C$102.10.

Bank of Canada

The loonie rallied on May 31, when the Bank of Canada added language about a potential increase in borrowing costs for the first time since September, saying it will raise rates “eventually” as the economy recovers.

The target for overnight loans between commercial banks remained at 1 percent, where it has been since September. The U.S., to which Canada ships about 75 percent of its exports, hasn’t changed rates since December 2008.

“The domestic side of the Canadian economy just doesn’t need emergency low interest rates, which is not something you can say with the U.S.,” said David Watt, senior currency strategist at Royal Bank of Canada’s RBC Capital Markets unit in Toronto. “The U.S. is our largest trading partner, and that’s probably one of the reasons why the Bank of Canada hasn’t raised the rates more.”

The loonie fell against the greenback on June 3 after U.S. Labor Department figures showed payrolls increased by 54,000 jobs in May after the addition of 232,000 in the previous month. The U.S. unemployment rate increased to 9.1 percent.

--With assistance from Chris Fournier in Halifax. 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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