Bloomberg News

Canadian Dollar Falls Versus Major Peers as Crude Oil Declines

December 30, 2011

Dec. 30 (Bloomberg) -- The Canadian dollar fell against all of its most-traded counterparts as declines in stocks and crude oil, the nation’s biggest export, dimmed the appeal of currencies tied to growth.

Canada’s currency, dubbed the loonie for the image of the aquatic bird on the C$1 coin, posted declines for the month and the year. It traded on average above parity with its U.S counterpart for the first time in more than three decades. The greenback also weakened against most major peers.

“Typically when the U.S. dollar is offered, the Canadian dollar loses on the crosses,” said Marc Chandler, global head of currency strategy in New York at Brown Brothers Harriman & Co. “There is no liquidity,” he said, referring to market volumes being lighter than usual.

The loonie was little changed at C$1.0213 per U.S. dollar at 5 p.m. Toronto time. It touched C$1.0126 two days ago, the strongest since Dec. 8. One Canadian dollar buys 97.89 U.S. cents. Canada’s dollar was little changed against the euro at C$1.3237 after yesterday reaching its highest since January.

Canada’s dollar maintained an average of 98.92 Canadian cents per U.S. dollar in 2011, according to daily closing prices, the highest annual value since 1976, when it traded at 98.63 Canadian cents, according to Bloomberg data.

The loonie is the second-worst performer this year among the 10 major currencies monitored by Bloomberg Correlation Weighted Indexes after the euro, down 1.8 percent. The shared currency lost 2 percent.

The Standard & Poor’s 500 Index declined 0.4 percent. Futures on crude oil declined 0.8 percent to $99.06 a barrel in New York after earlier falling 1.2 percent. Futures are up 8.4 percent on the year.

Euro Falls

Europe’s 17-nation currency dropped below 100 yen for the first time since June 2001 after Spain said its budget deficit will reach 8 percent of gross domestic product this year, more than the previous forecast of 6 percent. Luxembourg’s Jean- Claude Juncker, who leads the group of euro-area finance ministers, said economic growth in the euro region “isn’t good” and the world economy is growing only in some Asian and African countries.

Implied volatility for one-month options on the Canadian dollar versus the greenback rose for a sixth day to as high as 11.1 percent, the most since Dec. 16. Implied volatility, which traders quote and use to set option prices, signals the expected pace of swings in the underlying currency. The measure has averaged 10 percent this year.

Government Bonds

Canada’s benchmark five-year note was little changed, with the yield ending the day at 1.28 percent as the price of the 2.75 percent security due in September 2016 held steady at C$106.68. Canadian five-year bonds yielded 44 basis points above equivalent-maturity U.S. securities, from 41 at the end of last year. The so-called spread hit 33 basis points on Dec. 27, the narrowest this year. It was as wide as 77 basis points in July.

The nation’s government bonds have returned 9.6 percent this year, the most since 2008, according to Bank of America Merrill Lynch data.

Canada’s currency has fallen 0.4 percent this month and 2.3 percent this year against its U.S. counterpart. It strengthened to 94.07 cents per U.S. dollar, a more than three-year high, on July 26 and weakened to C$1.0658 on Oct. 4.

The loonie will depreciate to C$1.04 by the end of the first quarter before rebounding to parity by year-end, according to median forecasts of 33 analysts and economists in a Bloomberg survey. Those forecasts compared with C$1.02 and 98 Canadian cents at the end of November.

--Editors: Kenneth Pringle, Paul Cox

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net


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