Bloomberg News

Canadian Currency Weakens Before Greek Leaders’ Rescue Decision

February 09, 2012

Feb. 8 (Bloomberg) -- The Canadian dollar slipped versus its U.S. counterpart as global investors awaited a decision on whether Greece’s political leaders will agree to conditions required for a second international rescue package.

The currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, trimmed losses as a draft of a new financing deal for Greece outlined permanent spending cuts the nation faces. The loonie touched its weakest level versus Australia’s dollar since 1997. Canada’s currency has traded this week within a one-cent range against the greenback.

“Given the tight range we have seen in the Canadian dollar, this move felt pretty big,” said Steve Butler, director of foreign-exchange trading in Toronto at Bank of Nova Scotia’s Scotia Capital unit. “The market is still concerned about Greece. Unless they come up with some positive headlines, I would expect a little risk-off.”

Canada’s dollar depreciated 0.2 percent to 99.60 cents per U.S. dollar at 5 p.m. Toronto time, after losing as much as 0.5 percent and gaining 0.1 percent earlier. It has traded this week between 99.29 cents and 99.95 cents, following an advance on Feb. 3 to 99.28 cents, its strongest level since Oct. 31. One Canadian dollar buys $1.0040.

Crude oil, Canada’s biggest export, pared earlier gains. Futures for March were up 0.3 percent to $99.04 a barrel in New York after climbing earlier as much as 1.4 percent and falling 0.6 percent.

Bonds Drop

Canada’s government bonds fell for a second day, pushing benchmark two-year yields up four basis points, or 0.04 percentage point, to 1.08 percent, the highest level since Oct. 31. Yields on the 10-year note rose three basis points to 2.07 percent, the highest since Jan. 25.

The government auctioned C$3.5 billion ($3.5 billion) of two-year debt today at an average yield of 1.095 percent, up from 0.973 percent at the January offering of the securities and above the 0.986 percent average of the past five offerings. The 0.75 percent notes are due in May 2014.

The auction attracted $8.2 billion in bids, 2.34 times the amount offered. The coverage ratio, a gauge of demand, fell from 2.59 in January and compared with an average of 2.51 at the past five sales.

The loonie weakened to its low of the day as Greek Prime Minister Lucas Papademos was locked in talks with leaders of the political parties that support his caretaker government. He met late yesterday with officials of the European Commission, the European Central Bank and the International Monetary Fund to put final touches on the rescue plan.

Permanent Cuts

Greece would pledge permanent spending cuts, including lower pension payments and a 20 percent cut in the minimum wage, under the draft of a new financing deal with the EU and IMF obtained by Bloomberg News. The draft is the focus of Papademos’s talks with political leaders to secure a 130 billion-euro rescue plan.

Euro-area finance ministers are due to gather tomorrow for an emergency meeting in Brussels. Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of finance chiefs from the 17-nation euro area, called the session, according to an e- mailed statement today. It will follow the ECB’s monthly policy meeting and an assembly of Greek creditors in Paris.

The Canadian currency weakened against the euro for a third day, depreciating 0.2 percent to C$1.3208.

Commodity Currencies

Australia’s dollar touched C$1.0784, its highest level against the loonie since May 1997, as commodities rose earlier on optimism an agreement on Greece would be reached. Australia, like Canada, is a commodity exporter. The Aussie traded later at C$1.0755, up less than 0.1 percent from yesterday.

“It’s highlighting that Canada in a risk-on environment seems to underperform, and in a risk-off over performs, against its commodity brethren,” Butler said.

The Canadian dollar gained 2 percent over the past three months against nine developed-nation counterparts monitored by Bloomberg Correlation-Weighted Indexes. The U.S. dollar fell 1.2 percent, while the euro dropped 3.5 percent. The Aussie dollar climbed 6 percent.

--Editors: Greg Storey, Kenneth Pringle

To contact the reporter on this story: Austen Sherman in New York at asherman18@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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