Oct. 7 (Bloomberg) -- Canada’s dollar declined from the strongest level in more than a year as crude oil, the nation’s biggest export, fell and stocks swung between gains and losses, dimming the appeal of higher-yielding currencies.

The Canadian dollar, nicknamed the loonie, weakened for the first time in four days against its U.S. counterpart. Oil dropped below $70 a barrel. The Australian dollar, which like the loonie tends to rise and fall with stocks and commodity prices, fell for the first time in three days.

“Oil prices softened quite a bit and U.S. stocks didn’t have a great day,” said Blake Jespersen, director of foreign exchange in Toronto at BMO Capital Markets, a unit of Canada’s fourth-largest bank. “It’s really hard for the market to get long the Canadian dollar aggressively at these levels.” A long position is a bet a currency will rise.

Canada’s dollar depreciated 0.2 percent to C$1.0618 per U.S. dollar at 4:49 p.m. in Toronto, from C$1.0594 yesterday. It earlier touched C$1.0529, the strongest since Sept. 30, 2008. One Canadian dollar buys 94.18 U.S. cents.

The loonie gained 15 percent against the dollar this year and was the best performer against the greenback last week of the 16 most-traded currencies tracked by Bloomberg.

The U.S. dollar became attractive to Canadian companies that export goods to the U.S. when the loonie rose as high as 94.98 U.S. cents today, said John Curran, a Toronto-based senior vice president at CanadianForex Ltd., an online foreign- exchange dealer.

‘Psychological Level’

“Ninety-five cents is a bit of a psychological level for many of the hedgers,” Curran said. “Many of the exporters have priced the Canadian dollar at much lower levels into their products, and this is a great opportunity for them.”

The greenback “could see a corrective bounce” against the loonie, but any gains should be followed by longer-term selling of U.S. dollars, Jonathan Gencher, Toronto-based director of foreign-exchange sales at BMO Capital, wrote today in a note to clients.

There’s a 54 percent likelihood the loonie will strengthen to parity with the U.S. dollar by the end of the first quarter next year, according to implied volatility from options trading monitored by Bloomberg. Canada’s currency last traded at C$1 per U.S. dollar in July 2008.

“The market definitely wants to test the par level again, it’s just a matter of when,” CanadianForex’s Curran said. “We’re so close, and it’s such a great psychological level. It’s too attractive not to take a peak again.”

Oil, Stocks

Crude oil for November delivery fell for the first time in three days, dropping 1.8 percent to $69.61 a barrel at the close of trading on the New York Mercantile Exchange, after a U.S. Energy Department report showed that inventories of gasoline and a fuel category that includes heating oil increased.

The Standard & Poor’s 500 Index declined as much as 0.4 percent before rising 0.3 percent in the last half-hour. The MSCI World Index, a measure of stocks in 23 developed markets, was up 0.2 percent after falling as much as 0.4 percent.

Canadian government bonds were little changed after the Bank of Canada sold C$3.5 billion ($3.3 billion) of two-year notes at an average yield of 1.422 percent. The government received bids of C$8.6 billion for the 1.25 percent securities due in December 2011, according to a statement on the central bank’s Web site. The bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount sold, was 2.46.

The yield on the benchmark two-year note slipped one basis point, or 0.01 percentage point, to 1.24 percent. The price of the 1 percent security maturing in September 2011 rose 2 cents to C$99.56. The yield on the 10-year note fell one basis point to 3.28 percent.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

Last Updated: October 7, 2009 16:51 EDT