Bloomberg News

Canada’s Dollar at Almost 1-Year Low as Risk Appetite Declines

September 29, 2011

Sept. 29 (Bloomberg) -- Canada’s dollar traded at almost a one-year low against the greenback as investors sought to cut risk exposure by buying U.S. dollar-denominated assets.

The U.S. dollar has climbed against all but Japanese yen among of its 16 most-traded counterparts this quarter -- including a 7 percent gain against the loonie -- as investors flocked to the currency to shield themselves from Europe’s escalating sovereign debt crisis. The dollar’s status as a haven has increased even after a debate about the debt ceiling led to the U.S. credit rating being downgraded in August, Goldman Sachs Group Inc. said yesterday.

“Generally, oil and equities drive the currency, but what we are seeing today is that people are looking at the U.S. dollar dips as an opportunity to liquidate their Canadian dollar position,” said Rahim Madhavji, president of Knightsbridge Foreign Exchange Inc. in Toronto. “While people want to cling on to a risk-on trade, it seems they are positioning themselves for risk-off and taking every opportunity to buy U.S. dollars when they can.”

The loonie, as the currency is also known, dropped 0.2 percent to C$1.0359 per U.S. dollar by 5 p.m. in Toronto, compared with C$1.0335 yesterday. Earlier, it rose as much as 0.8 percent, touching C$1.0257. It reached C$1.0386 on Sept. 26, the weakest in more than one year. One Canadian dollar buys 96.53 U.S. cents.

Quarter Decline

The loonie has declined 2.2 percent during the past three months among a basket of the currencies of 10 developed markets, according to Bloomberg Correlation-Weighted Indexes. The U.S. dollar has appreciated 6 percent in the same period.

A report showed the American economy grew faster than earlier estimated and jobless claims declined. The U.S. economy expanded at a 1.3 percent pace in the second quarter, and applications for jobless benefits dropped by 37,000 in the week ended Sept. 24 to 391,000, the fewest since April, according to government data. The U.S. is Canada’s largest trading partner.

“For the moment, risk aversion rules,” said John Curran, senior vice president at the online foreign exchange dealer CanadianForex Ltd. “We strengthened a little bit off the U.S. numbers that were better than expected, but that was short-lived because the greater concern is what’s going on in Europe, and that’s going to weigh on the Canadian dollar.”

Bonds Fall

Canada’s government bonds declined. Yields on benchmark 10- year debt rose two basis point to 2.21 percent as the price of the 3.25 percent securities fell 18 cents to C$108.94. Yields touched record lows of 1.994 percent on Sept. 23. Canadian government securities have returned 5.63 percent this quarter and 7.52 percent this year, according to Bank of America Merrill Lynch indexes.

Commodity currencies got a boost earlier after German lawmakers approved a strengthening of the euro-area rescue fund, clearing the way for European officials to focus on which next steps may be needed to stem the debt crisis.

“The European calendar remains challenging, with plenty of event risk over the next month,” said Stewart Hall, currency strategist at Royal Bank of Canada’s RBC Capital Markets unit, in a telephone interview from Toronto. “Europe has a lot of issues to tackle. The reality is, building out the treaty infrastructure in order to really put these types of issues to rest is going to take years.”

Canadian factory-product prices unexpectedly rose in August as a weaker dollar boosted the domestic value of exported automobiles, government figures showed. Manufacturers’ raw- material costs fell for a fourth consecutive month.

The industrial product price index rose 0.5 percent in August from July, Ottawa-based Statistics Canada said today. Vehicle and other transportation equipment prices rose 1.7 percent, with the prices received for exports boosted by the currency’s 2.8 percent decline. The industrial-price index would have fallen 0.2 percent excluding the impact of the dollar.

The raw-materials price index fell 3.2 percent as crude oil fell 7.5 percent on concern that global economic growth was slowing, Statistics Canada said.

--Editor: Paul Cox, Dave Liedtka

To contact the reporter for 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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