Bloomberg News

Canadian Dollar Reaches Three-Day Low on Global Growth Concern

September 20, 2011

Sept. 20 (Bloomberg) -- The Canadian dollar touched a three-day low versus its U.S. counterpart as the International Monetary Fund cut its forecast for global economic growth and reduced projections for Canada.

The currency fell for a second day as the IMF lowered Canada’s growth forecast this year to 2.1 percent from a June estimate of 2.9 percent. It cited weaker demand from the U.S., the nation’s biggest trade partner, and slower government spending. Bank of Canada Governor Mark Carney said he may keep interest rates low beyond when full output is restored.

“Growth is going to be challenged, that much is clear,” Jack Spitz, managing director of foreign exchange sales at National Bank of Canada, said by telephone from Toronto. “Ultimately, the Canadian dollar takes its cue from the global barometer, which is decidedly negative these days.”

Canada’s dollar depreciated 0.2 percent to 99.27 cents per U.S. dollar at 5 p.m. in Toronto, compared with 99.07 cents yesterday, when it dropped as much as 1.5 percent to 99.23 cents. Earlier today, it fell 0.4 percent to 99.49 cents, the weakest level since Sept. 15. One Canadian dollar buys $1.0074.

The loonie, as the currency is nicknamed for the image of the aquatic bird on the C$1 coin, pared losses as commodities rose. October futures on crude oil, Canada’s biggest export, gained for the first time in three days, advancing 1.4 percent to $86.89 a barrel in New York trading, and gold for immediate delivery climbed 1.4 percent to $1,803.63 an ounce. Raw materials account for about half of the nation’s export revenue.

‘Getting a Lift’

“We are getting a lift from commodities rising, especially oil and gold,” said Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp.

Government bonds declined, with yields on benchmark 10-year notes rising one basis point, or 0.01 percentage point, to 2.19 percent. The price of the 3.25 percent securities maturing in June 2021 fell 9 cents to C$109.19.

Bank of Canada Governor Carney said the domestic economic recovery will be hobbled by a weak U.S. recovery that could tip into another recession.

“The United States is in the midst of the weakest recovery since the Great Depression, and the bank does not expect that to change at any time soon,” Carney, 46, said in a speech today in Saint John, New Brunswick. “Given current material headwinds, the policy rate can return to its long-run level after inflation is projected to reach the 2 percent target and output is projected to reach its potential.”

The Bank of Canada has kept the overnight rate at 1 percent since September 2010.

Fed Meeting

The Federal Reserve may take steps at a two-day meeting that began today to bolster the U.S. economy. The Fed may decide to replace short-term Treasuries in its $1.65 trillion portfolio with long-term bonds, according to 71 percent of 42 economists surveyed by Bloomberg News. The idea is known as “Operation Twist” for its goal of bending long-term yields lower.

“Everyone is keeping their powder dry ahead of the Fed meeting tomorrow,” said Oanda’s Popplewell.

The IMF said the world economy will expand 4 percent this year and next, compared with June forecasts of 4.3 percent in 2011 and of 4.5 percent in 2012. The U.S. growth projection for 2011 was cut to 1.5 percent this year, from 2.5 percent in June.

Canada, the world’s 10th largest economy, relies on exports for a third of its gross domestic product, and a majority of that goes to the U.S.

The currency of Australia, another commodities exporter, rose versus the majority of its 16 most-traded counterparts today as investors sought higher-yielding assets. Australia’s biggest trade partner is China.

Wholesale Sales Rise

The Canadian dollar erased losses earlier versus the U.S. currency as Statistics Canada data showed wholesale sales rose 0.8 percent to C$48.2 billion ($48.6 billion), matching the median estimate of 16 economists surveyed by Bloomberg News. The sales stalled a month earlier.

“The data released this morning support our expectation that economic growth will rebound in the third quarter, ensuring that Canada will avoid a technical recession,” David Tulk, chief Canada macro strategist at Toronto-Dominion Bank’s TD Securities unit, said in a note to clients. “However, the prevailing rate of growth is not expected to be that strong, as there is a limited ability for domestic demand to carry the overall economy against intensifying global headwinds.”

Canada’s consumer price index rose 2.9 percent in August from a year earlier, compared with 2.7 percent the previous month, economists in a Bloomberg survey forecast before the statistics agency reports the data tomorrow.

The loonie has weakened 2.2 percent this year, according to Bloomberg Correlation-Weighted Currency Indexes, a gauge of 10 developed-nation currencies. The greenback has fallen 2.8 percent, while the yen has gained 3.8 percent.

--Editors: Greg Storey, Paul Cox

To contact the reporter on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net.

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


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