Oct. 31 (Bloomberg) -- Canada’s dollar fell for a second consecutive week, driving the currency to a loss for the month, after officials warned that it’s too strong and crude oil and stocks slumped.

The Canadian currency, nicknamed the loonie, tumbled the most against its U.S. counterpart over the past five days since June. A report yesterday showed the nation’s economy unexpectedly shrank in August, and Finance Minister Jim Flaherty said it proved the recovery is “fragile.” Canada’s unemployment rate rose last month as its job growth slowed, reports next week are forecast to show.

“The weaker Canadian number and Flaherty’s comments will support loonie bears,” said Dean Popplewell, a currency analyst in Toronto at Oanda Corp., an online currency-trading firm. “The whiplash effect this week has taken many speculators out of the game.”

The Canadian currency depreciated 2.9 percent to C$1.0848 per U.S. dollar yesterday in Toronto, the lowest level since Oct. 2, from C$1.0538 on Oct. 23. It climbed two weeks ago to within three cents of parity with the greenback. One Canadian dollar buys 92.19 U.S. cents.

Canada’s dollar lost 1.4 percent for October. It has fallen every other month since May, when it posted the biggest 30-day gain since 1950, 9.3 percent. It touched C$1.0207 on Oct. 15, the strongest level since July 29, 2008. It last traded with the U.S. dollar on a one-for-one basis on July 22, 2008.

Economy Shrinks

Gross domestic product shrank 0.1 percent in August, Statistics Canada said yesterday in Ottawa. The median forecast in a Bloomberg News survey of 23 economists was for a 0.1 percent expansion. An Oct. 29 report showed the economy of the U.S., Canada’s largest trading partner, grew at a 3.5 percent annual pace in the third quarter, more than forecast.

The Canadian economic report is a sign the government needs to continue with an economic stimulus package, Finance Minister Flaherty told reporters in Toronto. Volatility in the nation’s currency is the “enemy” of exporters, he said.

Bank of Canada Governor Mark Carney intensified warnings over the past two weeks that a stronger loonie threatens the nation’s economic recovery and said the central bank retains policy options to weaken it. The currency gained 27 percent from a four-year low on March 9 through Oct. 19, the day before policy makers left interest rates at a record low 0.25 percent and reiterated a conditional commitment to keep them there through June 2010. The loonie dropped 5.2 percent since then.

‘Sigh of Relief’

“The Bank of Canada is breathing a sigh of relief” at the loonie’s fall, said Oanda’s Popplewell. “We have tried and failed at the C$1.0850 level first time around, but I expect that to be penetrated soon.” He added that “plummeting” commodity and equity prices mean the currency should continue depreciating and soon test that level, last reached on Oct. 2.

U.S. stocks tumbled, with the Standard & Poor’s 500 Index registering a weekly loss of 3.9 percent and its first month decline since February as reports showed drops in American consumer spending and confidence. Personal spending decreased in September for the first time in five months, sliding 0.5 percent, the Commerce Department reported yesterday. The Reuters/University of Michigan final index of consumer sentiment declined this month to 70.6 from 73.5 in September, which was the highest in more than a year.

Crude oil for December delivery plunged yesterday as much as 3.8 percent to $76.85 a barrel, the lowest price in two weeks, on the New York Mercantile Exchange. It ended the week at $77, down 4.4 percent. Raw materials account for more than half of Canada’s export revenue, and crude is its biggest export.

Doesn’t ‘Feel Complete’

“The run-up in funds does not feel complete yet,” Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc., a unit of Canada’s second-largest bank, wrote in a note to clients yesterday, meaning the U.S. dollar’s rally versus the Canadian currency may continue. There is “little in terms of obvious resistance ahead of the upper C$1.09 area,” he said. Resistance in this case refers to the upper boundary of the U.S. dollar’s trading range, where orders to sell may be clustered.

Canadian employers likely added 10,000 jobs this month, compared with a gain of more than 30,000 in September, and the unemployment rate probably rose to 8.5 percent, from 8.4 percent, according to the median estimates in Bloomberg News surveys of economists. Statistics Canada is due to release the data on Nov. 6 at 7 a.m. The agency will also report next week on building permits.

Government bonds rose for the week, pushing the Canadian two-year note’s yield down 13 basis points, or 0.13 percentage point, the most since August, to 1.39 percent. The price of the 1.25 percent security maturing in December 2011 increased 27 cents to C$99.72. Canada’s government debt lost investors 1 percent this year, according to a Merrill Lynch index.

The Canadian dollar fell this week against 12 of the 16 most-traded currencies tracked by Bloomberg. The greenback rose against all but two of them, the pound and the yen.

The loonie will trade at C$1.05 to the U.S. dollar at year- end, according to a Bloomberg survey of 37 economists and analysts.

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

Last Updated: October 31, 2009 00:01 EDT