Bloomberg News

Canada’s Dollar Declines Amid Europe Debt Plan Summit Concern

October 20, 2011

Oct. 20 (Bloomberg) -- Canada’s dollar weakened against its U.S. counterpart after a report that Germany would seek to postpone this weekend’s summit on Europe’s sovereign debt crisis curtailed demand for riskier assets.

Canada’s currency declined as stocks and crude oil, the nation’s largest export, traded lower. The loonie, as the currency is nicknamed, rose earlier amid speculation European leaders will agree to increase the effectiveness of the bailout fund for the region’s crisis. It remained higher versus 13 of its 16 most-traded peers.

“The main action that has caused the market to turn around were the headlines that the summit this weekend may actually be postponed and that soured things,” said George Davis, chief technical analyst for fixed income and currency strategy in Toronto at Royal Bank of Canada. “The equity market has also come under some selling pressure that combined with lower commodity prices have pushed risk aversion levels higher and that is positive for the U.S. dollar.”

Canada’s currency fell 0.2 percent to C$1.0220 per U.S. dollar at 11:33 a.m. in Toronto, after rising as much as 0.7 percent. One Canadian dollar buys 97.94 U.S. cents.

“Europe is completely driving the bus right now,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, in a telephone interview.

Bond Trade

The Standard & Poor’s 500 Index declined 0.3 percent after gaining as much 0.3 percent. Crude oil futures lost 1 percent to $85.20 a barrel in New York after gaining has much as 1.1 percent.

Government bonds rose, with the 10-year note’s yield down three basis points to 2.30 percent. The price of the 3.25 percent security maturing in June 2021 rose 24 cents to C$108.10.

Canada’s government bonds have returned 6.8 percent this year, compared with 6.2 percent for all of 2010, according to a Bank of America Merrill Lynch index.

Wholesale sales rose 0.2 percent in August to C$48.4 billion ($47.5 billion), Ottawa-based Statistics Canada said. Economists surveyed by Bloomberg News forecast a 0.5 percent increase, the median of 15 estimates.

The gain reflected higher prices for imported goods. Excluding the impact of prices, wholesalers recorded their biggest decline since May 2010.

Economic data reports are “overwhelmed by the momentum and influence that’s created by these headline bombs that keep hitting the market on a daily basis,” said National Bank’s Spitz. “There’s tremendous sensitivity because it’s unprecedented event risk.”

The currency will trade at about C$1.02 by year-end before strengthening to 98 cents by the end of next year, according to the median of 34 analyst and economist forecasts compiled by Bloomberg News. The median forecast a month earlier called for the loonie to end this year and 2012 at 98 cents.

--Editors: Paul Cox, Greg Storey

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#<570699.7180051.2.1.95.14779.25># -0- Oct/20/2011 15:40 GMT

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Chris Fournier in Halifax, Nova Scotia at cfournier3@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net NI CANADA NI FRX NI BON NI GBN NI ECO NI CNB NI TOP


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