Canadian Currency Declines for Longest Since November as Crude Oil Stalls

Canada’s dollar weakened versus its U.S. counterpart in the longest losing streak since November as crude-oil prices stagnated amid mounting investor concern that global economic growth is faltering.

The loonie, as the currency is known, fell for a third week as crude oil traded near a three-month low. Raw materials including oil account for about half of Canada’s export revenue. The nation’s inflation rate and retail sales were weaker than forecast, which may discourage the Bank of Canada from boosting interest rates this month. Housing and manufacturing in the U.S., Canada’s biggest trade partner, trailed estimates.

“The Canadian dollar suffered moderately this week because of declining confidence in the U.S economy and the world economy moving into the second quarter,” said Joseph Trevisani, chief market analyst at FX Solutions Inc. in Saddle River, New Jersey.

The loonie, nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.6 percent to 97.42 cents versus the U.S. dollar, from 96.86 cents on May 13. One Canadian dollar buys $1.0265. The currency rallied on April 29 to 94.46 cents, the strongest since November 2007.

Crude oil futures for June delivery decreased 0.2 percent this week to $99.49 a barrel in New York after dropping as low as $95.02 on May 17. They touched $94.63 on May 6, the lowest level since Feb. 22.

Industrial production in the U.S unexpectedly stalled in April and housing starts dropped. Output at factories, mines and utilities was unchanged after a 0.7 percent gain in March, figures from the Federal Reserve showed May 17. Work began on 523,000 houses at an annual pace, down 11 percent, according to Commerce Department data released the same day.

‘Longer-Term Softening’

“The risks are primarily tilted for a weaker Canadian dollar,” said John Shin, senior G-10 foreign-exchange strategist at Bank of America Merrill Lynch in New York. “Unless you got some type of substantial reversal back upward in oil prices, this is where we think you get into a longer-term softening period for the Canadian dollar.”

Central bank officials are forecast to boost the target rate for overnight loans to 1.5 percent during the third quarter and to 2 percent during the last three months of 2011, according to the median forecasts in a Bloomberg News survey.

The Bank of Canada has held its benchmark interest rate at 1 percent since September, when it increased it for the third time last year. It’s next due to decide on policy on May 31.

Consumer Prices

Consumer prices rose 3.3 percent in April from a year earlier, Statistics Canada said yesterday in Ottawa, less than the 3.4 percent gain economists predicted. Retail sales for March were little changed, a result weaker than any economist had forecast, with rising gasoline sales offset by declines in furniture, clothing and entertainment.

“The market was expecting something a little higher for CPI,” said Blake Jespersen, director of foreign exchange at Bank of Montreal in Toronto.

The consumer price index increased 0.3 percent in April after a 1.1 percent gain in the previous month, Statistics Canada reported.

The index will be “above 3 percent in the short term,” Bank of Canada Governor Mark Carney said in a speech on May 16 in Ottawa. Carney reiterated that annual inflation would slow to 2 percent by mid-2012.

The yield on Canada’s two-year bond slumped eight basis points to 1.61 percent, from 1.69 percent on May 13, and touched 1.60 percent yesterday, the lowest level since March 18. A basis point is 0.01 percentage point. The price of the 1.75 percent security maturing in March 2013 rose 14 cents to $100.25.

Rate Bets

September 2011 bankers’ acceptance contracts yielded 1.42 percent, the least since August on a closing basis. So-called Bax contracts average about 18 basis points above the central bank’s overnight target, Bloomberg data since 1992 show.

The trading indicates there’s about a 44 percent chance that the target lending rate will rise by a quarter-percentage point at the Sept. 7 Bank of Canada policy meeting, compared with odds of about 72 percent yesterday, according to David Love, a trader of interest-rate derivatives at the brokerage Le Groupe Jitney Inc. in Montreal.

“The Street was really worried about a higher-than- expected number,” said Love, referring to the consumer price index. “That didn’t happen, so BAX popped a bit,” meaning yields fell, indicating lower rate-increase expectations.

The loonie appreciated 0.6 percent to 83.88 yen and weakened 0.8 percent to C$1.5809 versus the pound.

“People are reevaluating what’s been going on,” said John Curran, a senior vice president in Toronto at CanadianForex Ltd., an online foreign-exchange dealer. “It’s been a general risk aversion, consolidation theme.”

To contact the reporters on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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