Loonie Falls From Almost Three-Week High Before Bank of Canada's Meeting

Canada’s dollar dropped from almost the highest level in more than three weeks versus its U.S. counterpart before central-bank policy makers meet tomorrow to determine interest rates.

The currency, nicknamed the loonie, slid 0.1 percent on Dec. 3 after the government reported that employers added fewer jobs in November than economists forecast. Canada’s dollar was still the second-best performer against the greenback today among its Group-of-10 counterparts, after the yen, as sovereign- debt speculation weakened Europe’s shared currency.

“The focus is shifting back to Europe and increased concern about a spreading European sovereign-debt issue,” Matthew Strauss, senior currency strategist at Royal Bank of Canada’s RBC Capital unit, said by phone from Toronto. “The Canadian dollar benefits every time there’s a huge move into the U.S. dollar. Our proximity to the U.S. is clearly helping us.”

Canada’s currency weakened 0.2 percent to C$1.0057 per U.S. dollar at 5 p.m. in Toronto after earlier depreciating 0.4 percent to C$1.0083. The currency closed at C$1.0039 on Dec. 3, when it touched C$1.0003, the strongest level since Nov. 11. It rose 0.6 percent versus the euro today to C$1.3383. One Canadian dollar buys 99.45 U.S. cents.

The loonie pared its loss versus the U.S. dollar as crude oil and North American stocks fluctuated. Crude is Canada’s biggest export.

The currency advanced 1.7 percent last week in its first five-day gain in four weeks amid a surge in oil prices.

‘Don’t Expect Much’

All 24 economists in a Bloomberg News survey expect the central bank’s governor, Mark Carney, to refrain from increasing borrowing costs.

“I don’t see too much happening in the loonie ahead of tomorrow,” Firas Askari, head currency trader in Toronto at Bank of Montreal’s BMO Capital unit, wrote via e-mail. “Even then, don’t expect much unless his comments are an outlier. Nobody is expecting a move.”

January futures on crude oil fell 0.4 percent to $88.83 a barrel in New York. Earlier they increased to $89.76, the highest level since October 2008, and fell as low as $88.56. The Standard & Poor’s 500 Index ended the day down 0.1 percent after falling as much as 0.3 percent and rising 0.1 percent.

The Bank of Canada held its target lending rate at 1 percent in October after three successive increases of a quarter-percentage point beginning June 1, citing a weaker economic outlook for the U.S., Canada’s biggest trading partner.

The loonie will trade on a one-for-one basis with the greenback through the end of the third quarter of 2011, according to the median forecast of 28 economists and analysts in a Bloomberg survey.

Bonds Gain

Government bonds rose, pushing the benchmark 10-year’s yield down six basis points, or 0.06 percentage point, to 3.13 percent. The price of the 3.5 percent security due in June 2020 climbed 48 cents to C$103.05.

The euro remained below a “key resistance level” versus the Canadian dollar at C$1.3680, within a “bearish channel defined by C$1.2986 and C$1.3680,” which is guiding prices lower, RBC’s Strauss and his colleague Paul Borean wrote in a report today. Resistance refers to the upper boundary of a trading range, where sell orders may be clustered.

“Euro-Canadian dollar will have to break above 1.3680 before we will question the bearish stance in the market,” Strauss said in an interview.

He recommended taking a short position in euro-Canada should the common currency strengthen beyond that level, targeting C$1.3223 and with stops at C$1.3941, according to the report. A short position is a bet a currency will weaken. Stops are automatic sell orders that traders use to limit losses.

Repetition of Decline

“We may see a repetition of the decline in euro-Canada dollar that we’ve seen over the course of this year,” Shaun Osborne, chief currency strategist at TD Securities Inc., a unit of Canada’s second-largest bank, said by phone from Toronto. “It’s going to be a buy-North-America, sell-North-America trend. The Canadian dollar may lose a little bit of ground against the U.S. dollar, but generally speaking it’s likely to remain strong against the crosses.” Crosses are currency pairs that don’t include the greenback.

The euro fell against most of its major counterparts as Germany rejected calls to increase the European Union’s 750 billion-euro ($1 trillion) aid fund or introduce joint bond sales, signaling its refusal to bear extra costs to stamp out the debt crisis.

With European finance ministers gathered in Brussels today for a monthly meeting, German Chancellor Angela Merkel rebuffed pleas from Belgium and central bankers to boost the emergency fund to save countries such as Portugal and Spain from falling prey to speculation.

The event concludes tomorrow when ministers from all 27 EU countries give formal approval to the Irish aid package announced Nov. 28, designed to stabilize the banking system and push down the deficit.

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

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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