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Canadian Currency Loses Most in Four Months on Japan Nuclear Plant Crisis

Canada’s dollar lost the most in four months against its U.S. counterpart after a nuclear power- plant crisis caused by Japan’s worst earthquake damped investor appetite for higher-yielding currencies.

The loonie, as the currency is also known for the image of the aquatic bird on the C$1 coin, pared its first weekly loss in more than a month after the Group of Seven intervened in the foreign-exchange markets to stabilize the yen. Canadian retail sales increased, data next week may show.

“The focus this week has been on risk aversion, moving away from higher-yielding currencies like the Australian dollar and Canadian dollar,” said Darren Richardson, senior corporate dealer in Toronto at CanadianForex Ltd., an online foreign- exchange company. “It’s going to be a wait-and-see situation to see what comes out of Japan and whether the market has the tolerance for taking on more risk.”

The Canadian currency depreciated 1.1 percent, the most since the five days ended Nov. 12, to 98.43 cents per U.S. dollar yesterday in Toronto from 97.32 on March 11. It touched the weakest level in a month, 99.74 cents, on March 17. One Canadian dollar buys $1.0160.

The loonie fell to 77.16 yen on March 17, its lowest level in almost two years, as the Japanese currency surged amid speculation Japanese investors were bringing home overseas assets to pay for rebuilding after the deadly temblor and tsunami six days earlier.

The G-7 nations, including Canada, agreed in a conference call on March 17 to jointly intervene in the foreign-exchange market for the first time since 2000 to stabilize the yen. Central banks intervene by selling or buying currencies to influence prices.

Most Since May

The Canadian dollar strengthened as much as 4.3 percent yesterday against the Japanese currency, the biggest intraday jump since May, to 83.52 yen.

The loonie gained against the U.S. dollar earlier yesterday as crude oil, Canada’s biggest export, rose on concern turmoil in Libya and the Middle East would disrupt supplies. Futures for April delivery rose to $103.66 a barrel in New York, the highest since March 10.

Crude reversed its advance, erasing a weekly gain, after Libyan Foreign Minister Moussa Koussa said in a televised news conference the North African nation is ceasing all military action and will start talks with rebels. The United Nations Security Council on March 17 approved military intervention to protect civilians in Libya, and President Barack Obama said yesterday Muammar Qaddafi must stop violence and repression against the Libyan people or face a military response by an international coalition.

Crude futures ended the week little changed at $101.07. The commodity has gained 11 percent this year.

Commodities Slip

Other commodities slid on speculation that business shutdowns in quake-damaged Japan would hurt demand. The Reuters/Jefferies CRB Index of raw materials declined 0.2 percent on the week. Raw materials account for about half of Canada’s export revenue.

“The Canadian dollar is a commodity currency,” said Tim O’Sullivan, chief trader at FOREX.com, a unit of the online currency trading company Gain Capital in Bedminster, New Jersey. “It’s going to reflect the fundamentals of oil and metals and certainly natural gas.”

The loonie outperformed the currencies of other countries that export commodities this week, including Australia and New Zealand. The Australian dollar weakened against all of its 16 major peers, and the New Zealand dollar fell versus 14 of 16.

Aussie Versus Loonie

“The Aussie has the potential to be particularly impacted by things going on from the Japanese side, and that’s not really the case for the Canadian dollar,” said Jens Nordvig, a managing director of currency research in New York at Nomura Holdings Inc.

Japan is Australia’s second-largest trade partner. Canada’s biggest is the U.S.

Canada’s government bonds rose this week, pushing the yield on the benchmark 10-year note down 11 basis points, or 0.11 percentage point, to 3.17 percent. It touched 3.12 percent, the lowest level since Jan. 4. The price of the 3.5 percent security due in June 2020 increased 86 cents to C$102.66. The 2-year note yield dropped 14 basis points to 1.61 percent and touched 1.52 percent, the lowest since Nov. 8.

The loonie gained versus the greenback on March 17 as data showed foreigners bought a net C$13.3 billion ($13.4 billion) of Canadian securities in January, including C$10.1 billion of federal government bonds. The total was more than double the $6 billion forecast in a Bloomberg News survey.

Retail Sales

Canadian retail sales rose 1 percent in January, after unexpectedly declining 0.2 percent the previous month, according to the median forecast of 23 economists before Statistics Canada reports the data on March 22.

Data this week showed Canadian factory sales rose in January more than four times faster than economists predicted, on a surge in production by carmakers, auto parts manufacturers and aerospace companies. Sales increased 4.5 percent to C$47.7 billion ($48.5 billion) from December, Statistics Canada said.

Inflation, excluding volatile items such as gasoline, slowed to a record low last month on a drop in prices for hotels and cars, the nation’s statistics agency said yesterday. The core inflation index, which excludes eight volatile items, rose 0.9 percent from a year earlier, after a 1.4 percent gain in January.

To contact the reporter on this story: Alexandra Harris in New York at Aharris48@bloomberg.net

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

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