Bloomberg News

Canada’s Dollar Weakens for Second Day as Risk Aversion Rises

November 16, 2011

Nov. 15 (Bloomberg) -- Canada’s dollar depreciated against its U.S. counterpart for a second day on concern the sovereign- debt crisis in Europe is spreading, reducing demand for higher returning assets.

The currency weakened to almost the lowest level in more than a month versus the greenback as the cost of insuring French bonds climbed to a record and Spanish yields rose at an auction. A government report showed Canadian factory sales rose a third straight month in September, advancing twice as fast as economists forecast, on gains by petroleum refineries and transportation products such as airplanes and motor vehicles.

“In this environment, it’s fear over fundamentals,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, in a telephone interview. “Fear is typically coming on the back of euro-zone headline releases that deal with peripheral debt issues, spreads and bond auctions.”

Canada’s currency dropped 0.4 percent to C$1.0211 per U.S. dollar at 5 p.m. in Toronto, after falling as much as 0.9 percent to C$1.0263. The currency touched C$1.0266 on Nov. 10, the weakest level since Oct. 13. One Canadian dollar buys 97.93 U.S. cents.

Canadian government bonds were little changed, with the benchmark two-year yielding 0.9 percent. The two-year securities yielded 66 basis points more than equivalent-maturity U.S. securities, the tightest so-called spread since Oct. 5. The 10- year yield rose one basis point to 2.12 percent.

Factory Sales

The Canadian currency pared losses after Statistics Canada reported the nation’s factory sales rose 2.6 percent in September, or double the median forecast of 21 economists in a Bloomberg survey.

“Those global macro issues are going to continue to dominate the landscape,” said National Bank’s Spitz. “Data releases like manufacturing data in Canada, albeit better, have not had an influence.”

U.S. stocks fluctuated after reports on retail sales and New York-area manufacturing topped economists’ estimates.

The 0.5 percent gain in retail sales last month followed a 1.1 percent increase for September, Commerce Department figures showed today. The median forecast of 81 economists surveyed by Bloomberg News was a rise of 0.3 percent.

The MSCI World Index of equities in developed nations slipped 0.3 percent. It fell as much as 0.9 percent.

The loonie, as the currency is nicknamed, has fallen 3.5 percent this year in the worst performance among 10 developed- nation currencies, according to Bloomberg Correlation-Weighted Currency Indexes. The greenback is down 0.7 percent.

“Risk off, but more precisely debt woes in European sovereign-bond markets are weighing on sentiment generally,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London, in a telephone interview. “We’re seeing the U.S. dollar do a bit better and those risk- sensitive currencies suffering. The Canadian dollar will take its lead from the performance from equity markets.”

--Editors: Kenneth Pringle, 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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