Bloomberg News

Canadian Dollar Falls to Five-Week Low as Euro Crisis Saps Risk

November 18, 2011

Nov. 17 (Bloomberg) -- Canada’s dollar depreciated to the lowest level in five weeks as sovereign-debt turmoil in Europe and a decline in stocks and commodities overshadowed foreign investments in Canadian securities.

The Canadian currency fell versus the U.S. dollar for a fourth day in the longest stretch of losses in more than a month on demand for a refuge. Spain’s 10-year yields rose to the highest level since before the euro’s 1999 debut. The loonie, as the currency is also known, rose earlier on reports the European Central Bank was buying Italian government bonds.

“It’s not been a good day for risk,” Francois Belanger, director of foreign-exchange sales at Bank of Montreal’s BMO Capital Markets unit in Montreal, said in a telephone interview. “Equities are down, oil is down, and the Canadian dollar is following along. Many people looked at the story out of Europe and used that as an excuse to head for the sidelines.”

The loonie declined 0.5 percent to C$1.0293 per U.S. dollar at 5 p.m. in Toronto. One Canadian dollar buys 97.15 U.S. cents. It touched C$1.0295, the weakest level since Oct. 12, and earlier rose 0.4 percent.

Futures on crude oil, Canada’s biggest export, plunged 3.1 percent to $98.64 a barrel in New York. Copper futures dropped 2.9 percent. The Standard & Poor’s 500 Index fell for a second day, shedding 1.7 percent.

Foreigners bought a net C$7.35 billion ($7.15 billion) of Canadian securities in September, led by federal government short-term debt, Statistics Canada reported.

‘Really Good’

“Those international securities numbers were really good,” Kathy Lien, director of currency research at the online trading firm GFT Forex, said in a telephone interview from New York. “That tells us that, in September, people still bought Canadian assets in size. We are still seeing the Canadian currency supported by some safe-haven flows.”

Non-Canadian investors purchased C$7.24 billion of treasury bills in September, including C$5.28 billion from the Canadian government, Ottawa-based Statistics Canada said. Non-residents also sold C$612 million of Canadian bonds in September and bought a net C$721 million of stocks.

Investment in money-market paper surged in the third quarter to a record C$16.2 billion, surpassing the C$9.9 billion gain in the last three months of 2008.

Canadian government bonds were little changed, with 10-year notes yielding 2.09 percent. The price of 3.25 percent securities maturing in June 2021 increased 2 cents to C$109.94.

The Canadian currency fell as Spain’s bonds sank and borrowing costs climbed to the most in at least seven years at an auction of Spanish securities.

Italy’s government bonds rose after the ECB was said to buy the securities to keep yields low and as the new leader, Mario Monti, pledged urgent action to curb the nation’s debt.

Merkel on ECB

German Chancellor Angela Merkel rejected in a Berlin speech French calls to deploy the ECB to quell debt turmoil, defying global leaders and investors who have been calling for more urgent action to halt the turmoil.

“The expectation is that the ECB is going to have to step in and backstop the bond market to prevent a systemic meltdown in Europe,” Shaun Osborne, chief foreign-exchange strategist at TD Securities, said in a telephone interview from Toronto. “The ECB will have to recognize that it is the lender of last resort, not just to banks but also to governments, and pile into bond markets in an aggressive manner to convince investors that there is an end in sight. In the meantime, it will be a bumpy ride.”

The loonie has lost 3.5 percent this year in the biggest drop among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The yen has increased 4.4 percent, compared with a 0.2 percent gain for the U.S. dollar.

--Editor: Dennis Fitzgerald, Greg Storey

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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