Bloomberg News

Canada’s Dollar Hovers at Almost 1-Year Low on European Concern

October 05, 2011

Oct. 5 (Bloomberg) -- Canada’s dollar traded at almost the weakest level in more than a year versus its U.S. counterpart on concern Europe’s debt crisis will crimp global growth, harming the nation’s exports.

The Canadian currency is among the worst performers in the past five days versus the greenback, as prices for commodities, which account for about half Canada’s export revenue, broadly declined. Losses were capped by gains in global stocks and a rebound in oil, which advanced from the lowest price level in a year.

“We’re going to be watching the evolution of risks in the European Union,” David Watt, senior currency strategist at Royal Bank of Canada’s RBC Capital Markets unit in Toronto, said in a telephone interview. “Canada is one of those currencies, we’re not necessarily the big carry trade, we’re not necessarily the big funding currency. We tend to be the one that is more open to global economic uncertainty.”

The Canadian currency was little changed at C$1.0498 per U.S. dollar at 10:37 a.m. in Toronto, compared with C$1.0513 yesterday, when it depreciated to C$1.0658, the weakest level since August 2010. One Canadian dollar buys 95.26 U.S. cents.

The euro weakened to almost a decade low against the yen after a spokesman for EU Economic and Monetary Commissioner Olli Rehn said there’s no concrete plan to recapitalize banks. Speculation about the effect of euro area bank holdings of Greek debt has helped weaken the euro 5.5 percent in the past month. Moody’s Investors Service cut Italy’s debt rating three levels yesterday, citing concern the government will struggle to reduce the region’s second-largest debt levels.

Crude Oil

“The big problem in Europe is still weighing down the rest of the market,” said C.J. Gavsie, managing director for currency trading at Bank of Montreal, by phone from Toronto.

Government bonds fell, pushing the 10-year yield higher by three basis points, or 0.03 percentage point, to 2.12 percent. The difference between yields on 10-year Canadian debt and U.S. equivalent-maturity Treasuries narrowed to 23 basis points from 31 two days ago. Canadian 10-year bonds yielded 32 basis points more than U.S. bonds last month and 14 less in April.

Crude oil for November delivery rose as much as $2.81 to $78.48 a barrel in New York, and the Reuters/Jefferies CRB Index of raw materials added 1.3 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.

The MSCI World Index of equities in developed nations advanced 1 percent, the first gain in four days.

--Editors: Dave Liedtka, 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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