Loonie Declines From One-Week High as Risk Aversion Cuts Demand for Crude

Canada’s dollar fell from the highest in almost a week versus its U.S. counterpart as a renewal of risk aversion dimmed demand for assets tied to growth such as stocks and crude oil, the nation’s largest export.

The currency rose as much as 0.5 percent, then reversed that gain after Moody’s Investors Service said it may lower Ireland’s credit rating by more than it previously anticipated. Economists expect government reports tomorrow to show inflation and retail sales increasing.

“Softer equities and commodities” are causing the Canadian dollar to sell off, Shane Enright, executive director in Toronto at Canadian Imperial Bank of Commerce’s CIBC World Markets unit, wrote in an e-mail. “The markets still have European concerns, and that’s hurting the pro-risk bloc.”

The Canadian currency dropped 0.2 percent to C$1.0187 per U.S. dollar at 5 p.m. in Toronto, compared with C$1.0168 on Nov. 19. It appreciated to as much as C$1.0122, the strongest level since Nov. 16. One Canadian dollar buys 98.17 U.S. cents.

The Canadian dollar is “very comfortable between parity and C$1.0350 right now,” Enright wrote. “I can’t see either breaking in a hurry.”

Canada’s legal tender reached parity with the greenback on Nov. 5 for the first time in three weeks and traded back and forth through that level in the five sessions through Nov. 11. Since then, the currency has lost 1.8 percent and is the worst performer against the U.S. dollar’s 16 most-traded counterparts except for the Korean won.

Crude Oil

The euro had reached a one-week high versus the greenback after European Union finance ministers said the Irish aid deal will create a capital fund for Ireland’s lenders. The MSCI World Index of stocks advanced as much as 0.6 percent before falling 0.3 percent. Crude oil trimmed a 1.7 percent advance, trading little changed at $81.60 a barrel.

“The early euro rally on Irish confirmation is not seeing follow-through,” Firas Askari, head currency trader in Toronto at Bank of Montreal’s BMO Capital unit, wrote in an e-mail. “I still like the Canadian dollar on the crosses,” he wrote, referring to trades involving non-U.S. dollar currencies.

The loonie, as Canada’s currency is known for the image of the diving bird on the dollar coin, rose 0.1 percent to C$1.3883 versus the euro, the first advance in a week.

Canada’s consumer price index, a measure of inflation, rose at a 2.2 percent annual pace in October, from 1.9 percent in September, according to the median estimate of 22 economists in a Bloomberg survey. Statistics Canada is due to release the report tomorrow at 7 a.m. in Ottawa.

Retail sales climbed 0.7 percent in September, compared with 0.5 percent the month before, the median forecast in a Bloomberg survey of 22 economists showed. The statistics agency will release that report tomorrow at 8:30 a.m.

Government Bonds

Government debt rose, pushing the yield on Canada’s benchmark 10-year bonds down six basis points, or 0.06 percentage point, to 3.08 percent. The price of the 3.5 percent security due in June 2020 gained 50 cents to C$103.43.

Canadian Finance Minister Jim Flaherty said in a speech today in Oakville, Ontario, the country needs to balance its budget in order to protect the economic recovery. “I am determined to see that happen,” Flaherty said. “We must get our books back into the black to secure our recovery.”

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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