Canada’s Dollar Falls to Six-Week Low as U.S. Deficit Impasse Saps Risk

Canada’s dollar dropped to the lowest level in six weeks as America’s deficit impasse and Europe’s sovereign-debt crisis spurred demand for the safety of the U.S. currency.

The loonie, as the Canadian dollar is also known, was headed for a 3.7 percent drop this month against the greenback as stocks and crude oil fell today and a report showed the nation’s wholesale sales rose in September less than economists forecast. The loonie weakened as a U.S. debt-reduction committee with special powers to dissolve congressional gridlock failed to reach agreement.

“We are once again in a risk-off environment,” Jim Phoenix, a managing director at Canadian Imperial Bank of Commerce in Calgary, said in a telephone interview. “Certainly the European story is still the overarching concern in the currency markets. As that situation unfolds, it puts upward pressure on the U.S. dollar and downward pressure on the euro and the Canadian dollar.”

The loonie dropped 1.2 percent to C$1.0401 per U.S. dollar at 5:15 p.m. in Toronto, the weakest since Oct. 7. One Canadian dollar buys 96.15 U.S. cents.

The MSCI World (MXWO) Index of stocks in developed nations dropped 2.3 percent today after falling every day last week. The Standard & Poor’s 500 Index slid for a fourth day, shedding 1.9 percent. Futures on crude oil, Canada’s biggest export, were down 0.4 percent to $97.07 a barrel in New York.

Government Bonds

Canadian government bonds rose, pushing 10-year yields down two basis points, or 0.02 percentage point, to 2.10 percent. The price of 3.25 percent securities maturing in June 2021 increased 19 cents to C$109.86.

Wholesale sales advanced 0.3 percent to C$48.7 billion ($47 billion) in September, Statistics Canada said today in Ottawa. Economists predicted sales would rise 0.7 percent based on the median of 13 responses in a Bloomberg News survey.

A special debt-reduction committee in the U.S. Congress failed to reach agreement, extending partisan gridlock into the 2012 election year and setting the stage for $1.2 trillion in automatic spending cuts.

“After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline,” said panel co-chairmen Representative Jeb Hensarling of Texas and Senator Patty Murray of Washington.

“General nervousness and increased focus on political gridlock in the U.S.” is contributing to the Canadian currency’s decline, said David Watt, a senior foreign-exchange strategist at Royal Bank of Canada’s RBC Capital Markets unit in Toronto, in an e-mail message.

Moody’s on France

Moody’s Investors Service said today higher French borrowing costs are increasing fiscal challenges as the region’s debt crisis infects the top-rated nations. France’s highest rating is at risk of being lowered, the newspaper Le Figaro reported today. A spokeswoman in Moody’s press office in London declined to provide further comment.

“France is of some concern, but it has been for some time,” said Firas Askari, head of currency trading at Bank of Montreal’s BMO Capital Markets in Toronto, in a telephone interview. “Europe is in a bad position generally, and the U.S. is in a bad fiscal position.”

The loonie has depreciated 4.2 percent this year in the biggest drop among 10 developed-nation currencies after the New Zealand and Australian dollars, according to Bloomberg Correlation-Weighted Currency Indexes.

To contact the reporter on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net

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

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