Bloomberg News

Canadian Dollar Falls Against Greenback on Global Growth Outlook

September 28, 2011

Sept. 28 (Bloomberg) -- Canada’s dollar weakened versus its U.S. counterpart for the first time in four days, headed for monthly and quarterly losses, on concern the European debt crisis will hamper global economic growth.

Canada’s currency is down 2.5 percent during the past five days versus the greenback, while the Australian dollar fell 2.6 percent and New Zealand’s dollar dropped 3.1 percent, the three worst performers among the world’s 16 most-traded currencies. All three nations rely on resources for export revenue.

“It’s about the slow global growth environment,” said Stewart Hall, a currency strategist at Royal Bank of Canada’s RBC Capital Markets unit in Toronto, by e-mail today, referring to why commodity-linked currencies are losing value.

The Canadian currency depreciated 1.4 percent to C$1.0335 per U.S. dollar at 5 p.m. in Toronto, the weakest closing price since October 2010. It ended at C$1.0193 yesterday. It’s down 5.4 percent this month versus the greenback and 6.8 percent since June 30 in what would be its first quarterly loss since June 2010. One Canadian dollar buys 96.76 U.S. cents.

The Canadian currency dropped against 12 of its 16 most- traded peers today as commodities tumbled. Crude oil, the nation’s biggest export, snapped a two-day winning streak. Bank of Montreal cut its year-end forecast for Canada’s dollar, saying Europe’s 18-month sovereign-debt crisis will “weigh heavily” on the global economy.

“There are still ongoing issues about the weakness of the U.S. economy and the flow-through that that has into Canada,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. A split in prospects between “stressed” developed nations and Asian markets, which may be able to “decouple” from a western slowdown, “might see some relative Canadian-dollar underperformance,” he said.

Raw Materials Drop

Crude oil for November delivery tumbled 4.5 percent to $80.68 a barrel in New York, and the Reuters/Jefferies CRB Index of raw materials slid 2.5 percent. Raw materials account for about half of Canada’s export revenue. The country ships about three-quarters of its exports, including most of its crude oil, to the U.S.

Stocks fell amid concern policy makers can’t agree on measures to contain the European debt crisis. The MSCI World Index of equities in developed nations declined 1.6 percent.

The loonie, as Canada’s currency is nicknamed, pared losses as orders for U.S. capital goods rose in August. Bookings for goods like computers and communications gear, excluding military hardware and aircraft, climbed 1.1 percent, the most since May, a Commerce Department report showed today in Washington.

Demand for total U.S. durable goods declined 0.1 percent, trailing the 0.2 percent drop forecast in a Bloomberg News survey of economists.

Forecast Lowered

Bank of Montreal, Canada’s fourth-largest lender, lowered its year-end projection for the Canadian currency toward C$1.075 per U.S. dollar, compared with an earlier projection of 99 cents. Benjamin Reitzes, a senior economist and foreign-exchange strategist, wrote in a client note the firm sees no interest- rate increases from the Bank of Canada until 2013.

Shorter-term government bonds rose, snapping a three-day losing streak. Yields on Canada’s benchmark two-year notes fell two basis points, or 0.02 percentage point, to 0.93 percent. Yields reached a record low 0.76 percent on Sept. 12. The price of the 2 percent securities due in November 2013 rose 5 cents to C$101.20.

The Bank of Canada will give further information tomorrow on its website about its Oct. 5 auction of 10-year securities. The previous auction of 10-year bonds, on July 27, drew an average yield of 2.994 percent. The bid-to-cover ratio, which gauges demand by compared the amount bid with the amount sold, was 2.46, versus a five-auction average of 2.37 times.

--Editors: Greg Storey, Dave Liedtka

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

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


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