Canadian Dollar Falls as Crude Oil Drops, Central Bank Keeps Rates Steady

Canada’s dollar slid from near the strongest level in more than three weeks after commodities including crude oil, the nation’s biggest export, reversed gains, diminishing the appeal of growth-linked currencies.

The loonie, as the currency is nicknamed, also fell after the Bank of Canada held interest rates steady at 1 percent for a second straight meeting, highlighting threats to the nation’s economic recovery.

“Equities reversed late in the day, as well as commodities, led by crude, and that brought the Canadian dollar down,” Michael Leavitt, an institutional-derivatives broker at MF Global Holdings Ltd. in Montreal, said via e-mail.

The Canadian currency depreciated 0.7 percent to C$1.0124 per U.S. dollar at 5 p.m. in Toronto, compared with C$1.0057 yesterday. It touched C$1.0003 on Dec. 3, the strongest level since Nov. 11. One Canadian dollar buys 98.80 U.S. cents.

Demand for assets of resource-exporting countries earlier pushed the loonie as high as C$1.0012, tracking global stocks and commodities higher. Crude for January delivery exceeded $90 a barrel in New York for the first time in more than two years before dropping to $88.18, down 1.3 percent. The Standard & Poor’s/TSX Composite Index in Toronto rose 0.7 percent before ending the day down 0.2 percent.

Crude retreated after failing to maintain a break through a resistance level at $90 a barrel, spurring sales by investors. Resistance is an area on a chart where orders to sell may be clustered.

Greenback Gains

The U.S. dollar also gained, curbing the investment appeal of commodities. The greenback rose against 13 of its 16 most- traded counterparts after earlier falling against most of them.

Gold for immediate delivery fell 1.5 percent to $1,402.05 an ounce after earlier rising to $1,431.25. The Reuters- Jefferies CRB Index of raw materials fell 0.5 percent after gaining as much as 1.1 percent to touch 320.74, a 26-month high.

The Bank of Canada said in statement it will remain careful about future interest-rate increases as falling exports and Europe’s sovereign-debt crisis hinder the economic recovery.

“A combination of disappointing productivity performance and persistent strength in the Canadian dollar could dampen the expected recovery of net exports,” the bank said.

The bank’s decision to hold its overnight lending rate steady was anticipated by all 24 economists surveyed by Bloomberg News.

“The more balanced outlook from the Bank of Canada I don’t think had any real cause and effect on the Canadian dollar compared with equities and commodities,” MF Global’s Leavitt said.

Three Increases

The central bank kept borrowing costs steady in October after three successive increases of a quarter-percentage point each beginning June 1, when it became the first among the Group of Seven nations to raise interest rates since July 2008. In October it cited a weaker economic outlook for the U.S., Canada’s biggest trading partner.

The bank’s statement today “does choke off any talk of the Bank of Canada bringing a rate hike sooner,” David Watt, senior currency strategist at Royal Bank of Canada’s RBC Capital unit, said by phone from Toronto. “If anything, it suggests they may want to potentially stay on hold a little bit longer.”

The loonie has rallied 4 percent this year, partly on demand for the nation’s raw materials, including gold, crude, copper, timber and wheat, which account for about half its export revenue.

Loonie Rose

The Canadian currency rose earlier today against the greenback as investor demand for safety diminished after U.S. President Barack Obama said he would agree to sustain tax cuts for high-income taxpayers enacted during the administration of former President George W. Bush. In return, Obama would get an extension of unemployment insurance and a reduction in the payroll tax by $120 billion for a year.

Irish Finance Minister Brian Lenihan cut spending and raised taxes by 6 billion euros ($8 billion) to deal with what he called the “worst crisis in our history” as the government seeks to seal an international aid package designed to help stop Europe’s sovereign-debt crisis from spreading.

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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