Canada's Dollar Falls Most in a Month as Risk Aversion Swells on Korea

Canada’s currency weakened the most in more than a month against its U.S. counterpart as heightened concern about Europe’s debt woes and conflict between North and South Korea increased demand for assets considered havens.

The Canadian dollar, nicknamed the loonie, was among five of the 16 most-traded currencies that performed the worst against the greenback today. The loonie and its commodity-linked peers in Australia and New Zealand also dropped as resource prices declined on speculation China will increase borrowing costs further.

“The U.S. dollar is up across the board,” Firas Askari, head currency trader in Toronto at Bank of Montreal’s BMO Capital unit, wrote via e-mail. “There’s some concern about the military exercises on the Korean peninsula, and Europe’s issues are not going away any time soon. The flight to the U.S. dollar could cause a short-term selloff in the Canadian dollar.”

The currency depreciated as much as 1.5 percent, the biggest intraday drop since Oct. 19, and was down 1.1 percent at C$1.0208 per U.S. dollar at 4:42 p.m. in Toronto, from C$1.0092 yesterday. One Canadian dollar buys 97.96 U.S. cents.

The greenback rose to the highest level in almost two months versus the yen as North Korea’s state-run news agency said planned naval exercises by South Korea and the U.S. moved the peninsula “closer to the brink of war.”

The euro posted a weekly decline versus all of its 16 major peers except the New Zealand dollar and Danish krone amid media reports euro-area policy makers are pushing Portugal to seek assistance from a 750 billion-euro ($993 billion) bailout fund to shield Spain from contagion. Policy makers got Ireland to agree to a rescue this week.

‘Global Issues’

“Global issues are dominating one of the more volatile periods for the Canadian dollar,” Michael Leavitt, an institutional-derivatives broker at MF Global Holdings Ltd. in Montreal, said via e-mail. Leavitt predicted the currency will trade between C$1.0250 and C$1.0125 for the rest of the month.

Canada’s dollar was still the second-best performer this week, down 0.4 percent versus the greenback, and the third-best this month among its 16 most-traded counterparts. Domestic and international economic indicators suggested the nation’s recovery is set to accelerate.

“I still really like the Canadian dollar on the crosses,” said BMO’s Askari, referring to trades involving non-U.S. dollar currencies. He said he intends to sell the euro on rallies against the loonie.

Canada’s currency will strengthen past parity against the U.S. dollar by the end of March, according to the median forecast in a Bloomberg News survey of 27 economists.

The Canadian government’s benchmark two-year note yield dropped seven basis points, or 0.07 percentage point, to 1.66 percent as the price of the 1.5 percent security due in December 2012 rose 14 cents to C$99.68.

The MSCI World Index dropped 1.1 percent, and the Standard & Poor’s 500 Index declined 0.8 percent. Futures on crude oil, Canada’s biggest export, dropped as much as 1.3 percent to $82.78 a barrel in New York.

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.