Bloomberg News

Canadian Dollar Weakens to Within 1 Cent of Parity as Oil Falls

September 14, 2011

Sept. 14 (Bloomberg) -- Canada’s dollar fell for the first time in three days, weakening to within one cent of parity with its U.S. counterpart, as oil and copper dropped on speculation a global slowdown will hamper demand for raw materials.

The Canadian currency fell versus most of its major peers as U.S. retail sales unexpectedly stagnated in August, increasing concern the nation’s economic recovery is faltering. Canada ships about three-quarters of its exports to the U.S., including almost all of its crude oil.

“It’s still external factors which are going to be the driving force for the Canadian dollar,” Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce, said by phone from London. Weaker U.S. retail sales data mean “a reversal of the slightly improved risk sentiment.”

The Canadian dollar, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, depreciated 0.4 percent to 98.93 cents per U.S. dollar at 5 p.m. in Toronto, compared with 98.57 cents yesterday. It weakened as much as 0.8 percent to 99.40 cents. It traded at C$1.0027 two days ago, the lowest since Jan. 31. One Canadian dollar buys $1.0108.

The loonie extended losses after the Austrian parliament’s finance committee rejected adding an overhaul of the European Financial Stability Facility to the agenda of a meeting today, spurring speculation Europe’s debt crisis is worsening.

Austria’s parliament will now call a special meeting for the finance committee that will have the item on the agenda, according to Harald Waiglein, a spokesman for the ministry. The date could still be in September, he said.

Confidence on Greece

The Canadian currency pared losses later after France’s President Nicolas Sarkozy and German Chancellor Angela Merkel said after speaking to Greek Prime Minister George Papandreou by phone they’re convinced Greece will remain in the euro zone, according to a statement from Sarkozy’s office.

U.S. retail sales were unchanged in August, following a 0.3 percent gain for July that was smaller than previously estimated, Commerce Department figures showed today in Washington. The median forecast of 83 economists surveyed by Bloomberg News was a 0.2 percent rise.

Canadian government bonds were little changed. The benchmark 10-year security yielded 2.20 percent. The 3.25 percent note maturing in June 2021 traded at C$109.15.

The government drew an average yield of 0.954 percent today at its auction of C$3.5 billion ($3.53 billion) of two-year notes. The 1.5 percent securities due in November 2013 attracted $8.86 billion in bids, according to a statement on the Bank of Canada’s website.

Oil Declines

Canada’s currency fell versus 12 of its 16 most-traded counterparts. Crude oil, the nation’s biggest export, dropped to $88.54 a barrel in New York from yesterday’s one-month high of $90.52, and copper slid 1.6 percent to $8,630 a metric ton. Zinc, lead and tin also declined.

“I don’t know why the Canadian dollar is stronger than par,” John Curran, a senior vice president at CanadianForex Ltd., an online foreign-exchange dealer, said by phone from Toronto. “All we have to do is chew through some resting orders in corporate Canada and other interested parties up around that level. Once we break there, we’re off to the races, and C$1.03 is our target.”

The loonie gained 1.6 percent over the past week against nine other developed-nation currencies traded by Bloomberg Correlation-Weighted Currency Indexes. The greenback rose 1.7 percent. The U.S. is Canada’s biggest trade partner.

Prospects Dimmed

The Asian Development Bank cut its growth forecast for its region, dimming the prospects for raw materials, which account for about half of Canada’s export revenue.

The loonie’s one-month correlation coefficient with crude reached 0.82 today, approaching the reading of 0.88 it touched in November 2009, which was the highest in at least a decade, Bloomberg data show. A reading of 1 indicates the measures move in lockstep.

“It’s most likely to be a buy-on-dips mentality that will prevail as far as dollar-Canada is concerned,” CIBC’s Stretch said. “There’s still huge amounts of uncertainty out there.”

--Editors: Greg Storey, Paul Cox

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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