Canada Dollar Falls to Three-Week Low Amid Sovereign Debt, Growth Concern

Canada’s dollar slid to the lowest level in three weeks as concern over Europe’s fiscal woes and signs of a global slowdown drove investors away from higher- yielding assets like stocks and commodities.

The Standard & Poor’s 500 Index fell to an eight-month low after a gauge of U.S. consumer confidence trailed economists’ estimates. Commodities fell, led by declines in copper and other industrial metals, on concern that growth in China, the world’s largest consumer of all industrial metals, will slow.

“We have seen rapid risk aversion entering the market driven by the weaker economic data out of the U.S. and China, with commodity currencies taking the brunt of the damage,” said Darren Richardson, senior corporate dealer in Toronto at CanadianForex Ltd., an online foreign-exchange dealer. “We are still within a safe trading range, but if we get to C$1.07 or C$1.08 than it might be time to worry.”

The Canadian currency fell as much as 2.1 percent to C$1.0575 per U.S. dollar, the weakest level since June 8, before trading at C$1.0572 at 4:18 p.m. in Toronto, from C$1.0358 yesterday. One Canadian dollar buys 94.59 U.S. cents.

Canada’s currency is down 3.9 percent since March 31, poised for the first quarterly decline in more than a year.

‘So Much Uncertainty’

Copper, nickel and zinc slumped as the Shanghai Composite Index tumbled 4.3 percent after the Conference Board’s leading economic index for China, which last year overtook Germany as the world’s biggest exporter, rose 0.3 percent in April, less than the 1.7 percent reported June 15.

Crude oil, the nation’s largest export, declined as much as 3.9 percent. The S&P 500 sank 3.1 percent to 1,041.24, the lowest closing level since Oct. 30. Canada’s dollar tends to rise and fall with stocks and commodity prices as a barometer for risk appetite.

The health of Europe’s banks may be revealed tomorrow when the European Central Bank offers them three-month loans before a landmark 12-month facility has to be paid back.

European banks on July 1 need to repay 442 billion euros ($540 billion), the biggest amount ever awarded by the ECB and a key plank in its efforts to fight the financial crisis last year. Demand for three-month cash tomorrow will expose how much banks still rely on the ECB for funding, investors and economists said.

“There’s so much uncertainty now with the sovereign-debt crisis,” Aaron Fennell, a futures and currency broker at Lind- Waldock, a unit of MF Global Canada, said by phone from Toronto. “It’s like there’s this time bomb sitting in the economy and you don’t know when it’s going to go off.” Fennell is buying Canadian dollars on dips, and predicts it will trade between 93 and 98 U.S. cents.

‘Pure Risk-Off’

The Conference Board’s confidence index for the U.S. slumped to 52.9 this month from a revised 62.7 in May, figures from the New York-based private research group showed today. The median forecast called for a decline to 62.5, and the gauge was lower than all projections in a Bloomberg news survey.

The drop in the Canadian dollar is “a pure risk-off move,” Adam Cole, head of global currency strategy at Royal Bank of Canada, the nation’s biggest lender, said by phone from London. “It’s not been a particularly violent move. It’s just been grinding lower.”

Canada’s benchmark two-year bond gained for a sixth day, the longest streak since May 6. The yield dropped 12 basis points, or 0.12 percentage point, to 1.38 percent. The price of the 1.5 percent security due in June 2012 gained 22 cents to C$100.22.

World’s Soundest

The loonie has gained 7.2 percent this year according to Bloomberg Correlation-Weighted Currency Indices, the third-best performance among its 10 developed-world counterparts as Europe’s sovereign-debt crisis burnished the allure of currencies backed by relatively strong balance sheets.

Canada, the last member of the Group of Seven industrialized nations to enter the global recession, was the first to recover, thanks partly to having the Group of Seven’s lowest debt-to-GDP ratio and the world’s soundest financial system, according to the World Economic Forum.

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Chris Fournier in Montreal at cfournier3@bloomberg.net.

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