Bloomberg News

Canada Dollar Trades Within 1 Cent of Parity on Europe Concern

September 13, 2011

Sept. 13 (Bloomberg) -- Canada’s dollar traded within one cent of parity with its U.S. counterpart as stocks and commodities fluctuated on concern Europe’s debt crisis will erode demand for higher-returning assets.

The Canadian currency approached a seven-month low earlier, before a report tomorrow forecast to show growth slowed in Canadian industrial companies’ use of their production capacity from April to June. Toronto-Dominion Bank reduced its forecast for the nation’s growth. The currency erased losses after German Chancellor Angela Merkel said she’s confident the euro’s stability can be secured.

“Europe, and more specifically developments in Greece, are clearly dictating the flow in foreign exchange,” Jack Spitz, managing director of foreign exchange at National Bank of Canada, said by phone today from Toronto.

The Canadian currency appreciated 0.2 percent to 99.03 cents per U.S. dollar at 12:01 p.m. in Toronto, after earlier falling as much as 0.5 percent to 99.77 cents. It closed at 99.27 cents yesterday, when it reached C$1.0027, the weakest level since Jan. 31. One Canadian dollar buys $1.0098.

The Standard & Poor’s 500 Index gained 0.2 percent after rising as much as 1 percent and falling 0.4 percent. The S&P GSCI Spot Index of commodities was little changed after increasing 0.6 percent and falling 0.4 percent. Raw materials account for about half of Canada’s export revenue.

Canada’s currency, nicknamed the loonie, reached the weakest level since January yesterday against the greenback, which touched the strongest since February versus Europe’s 17- nation currency on speculation a Greek default will lead to a spiraling sovereign-debt crisis and spread to banks.

Bonds Drop

Government bonds fell for a second day, pushing yields on Canada’s benchmark 10-year note up five basis points, or 0.05 percentage point, to 2.19 percent. The yields dropped to 2.089 percent yesterday, the lowest since at least June 1989. The price of the 3.25 percent securities due in June 2021 dropped 44 cents to C$109.27.

The loonie erased losses after German Chancellor Merkel said she’s in constant contact with French President Nicolas Sarkozy on the crisis.

Merkel, in a German radio interview broadcast today, warned against allowing a Greek default because of the risk of contagion for other euro-area countries. She said an “uncontrolled insolvency” would further roil markets.

Canadian industrial companies’ use of their production capacity slipped in the second quarter to 78 percent, from 79 percent in the previous three-month period, according to the median of 13 estimates compiled by Bloomberg News. Statistics Canada releases the data tomorrow in Ottawa.

Lower Forecast

Toronto-Dominion Bank, Canada’s second-largest lender, lowered its forecast for the nation’s economic growth this year and next to reflect a U.S. economy that had a deeper recession than previously reported, according to Craig Alexander, the bank’s chief economist.

TD cut its growth forecast to 2.2 percent this year, from 2.8 percent. It reduced the forecast for next year to 1.9 percent, from 2.5 percent, and raised the 2013 outlook to 2.6 percent, from 2.1 percent.

“The downgrade to Canadian growth this year and next is largely based on a downgrade to the external environment in which the Canadian economy is operating,” Alexander said today in a telephone interview from Toronto.

--Editors: Greg Storey, Dave Liedtka

To contact the reporter on this story: Chris Fournier in Halifax, Nova Scotia at cfournier3@bloomberg.net

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


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