Bloomberg News

Canadian Dollar Drops to One-Week Low on a Decline in Crude Oil

January 06, 2012

Jan. 5 (Bloomberg) -- Canada’s dollar slid to a one-week low versus its U.S. counterpart as crude oil fell and rising bond yields in France, Spain and Italy signaled renewed concern some euro-area nations may struggle to fund themselves.

The Canadian currency fell as much as 1 percent before paring its drop as U.S. stocks gained. Employers added 20,000 jobs in December after net losses in the previous two months, according to economists before tomorrow’s jobs report.

“There’s lot of euro-zone concerns coming into focus,” said Mary Nicola, a currency strategist at BNP Paribas SA in New York, in a telephone interview. “If you look at what’s been performing well, the U.S. dollar has come up” against the other major currencies.

The Canadian currency, also known as the loonie, depreciated 0.7 percent to C$1.0198 per U.S. dollar at 5 p.m. Toronto time. One Canadian dollar buys 98.06 U.S. cents. It touched C$1.0226, the weakest level since Dec. 29.

Futures on crude oil, Canada’s largest export, dropped 1.9 percent to $101.32 a barrel in New York. Canada derives about half of its export revenue from the sale of raw materials, including crude.

The Standard & Poor’s 500 Index increased 0.3 percent after earlier falling 0.9 percent. The S&P/TSX Composite Index was little changed.

Canada’s currency also pared losses after Statistics Canada reported that industrial product prices unexpectedly rose 0.2 percent in November and factory raw-material prices advanced 3.8 percent, more than seven times the median forecast of 11 economists in a Bloomberg News survey.

Ivey Index

The Ivey purchasing managers’ index rose to 63.5 in December on a seasonally adjusted basis, following a November reading of 59.9, the University of Western Ontario business school said today. The reading is a seven-month high. Readings of more than 50 indicate purchasing by governments and companies advanced. The index’s employment measure rose in December to 60, the highest since February, from 49.4 in the prior month.

Two-year Canadian government bond yields were little changed at 0.95 percent. The extra yield over U.S. Treasuries narrowed to 70 basis points, the smallest spread in a week.

Canada will sell C$3.5 billion ($3.4 billion) of bonds maturing in May 2014 on Jan. 11, the central bank said on its website today.

Prior Auction

The previous auction of two-year debt on Nov. 9 fetched an average yield of 0.967 percent and a coverage ratio, the amount bid for every unit of debt sold, of 2.497 times. The average ratio over the past five two-year auctions is 2.48 times.

Investors should purchase the Canadian dollar against the yen because the Japanese currency may weaken as “concern grows about how strong it is overall,” said Kit Juckes, head of foreign-exchange research at Societe Generale SA, in an e-mail message. “Speculation of intervention will resurface, and while 2012 may be a repeat of 2011 in the sense that a low-yield world is not compatible with a much weaker yen, January can see the yen soften.”

Central banks and governments intervene by arranging purchases or sales of currencies to influence the exchange rate.

The loonie dropped 0.2 percent to 75.61 yen today after earlier falling 0.5 percent. It dropped on Oct. 4 to 72.16 yen, the lowest level since February 2009.

U.S. Employment

The Canadian currency also pared its decline versus the greenback after a report from Roseland, New Jersey-based ADP Employer Services showed stronger-than-forecast growth in America’s company employment last month.

“The U.S. economy is stabilizing and showing signs of tepid growth,” said Firas Askari, head of currency trading at Bank of Montreal’s BMO Capital Markets in Toronto, in an e-mail message. “That’s good for Canada and the loonie overall. Europe is still a traffic accident in slow motion.”

France sold 7.96 billion euros ($10.2 billion) of debt, with 10-year borrowing costs rising in the country’s first bond auction of the year as credit-rating companies threaten to cut the nation’s AAA grade.

Askari predicted the Canadian dollar will trade in a range of C$1.0050 and C$1.0400 over the next six weeks.

With gains of 1 percent over the past month, Canada’s currency is the sixth-best performer after the yen, the greenback, the dollars of Australia and New Zealand and the pound among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The loonie is the worst performer over 12 months, having dropped 2.9 percent.

--With assistance from Greg Quinn in Ottawa. Editors: Dennis Fitzgerald, Greg Storey

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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