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Canadian Dollar Drops as Europe Concern Saps Risk; Yields Touch Record Low

Canada’s currency fell, extending its biggest five-day drop in six weeks, as speculation Europe is struggling to contain its sovereign-debt crisis damped appetite for higher-yielding assets.

The loonie, as the currency is also known, fell against all of its 16 most-traded counterparts as crude oil posted its biggest weekly drop since September. Reports showing U.S. consumer prices stagnated and foreigners bought less in Canadian securities than forecast weighed on the currency. Government 10- year bond yields fell below 1.9 percent for the first time.

“It hasn’t been a good week for the risk backdrop, with crude-oil prices being hit pretty hard, which isn’t helping Canada,” said George Davis, chief technical analyst for fixed- income and foreign-exchange strategy in Toronto at Royal Bank of Canada. “The risk backdrop has not been supportive now that people are more cautious with regards to the global growth outlook.”

The loonie declined 0.3 percent to C$1.0380 per U.S. dollar at 5 p.m. after reaching C$1.0424 on Dec. 14, the weakest since Nov. 28. One Canadian dollar buys 96.31 U.S. cents. Canada’s currency fell 2.1 percent this week, the most since the five days ended Nov. 4.

Foreigners bought a net C$2.03 billion ($1.97 billion) of Canadian securities in October, led by bonds, Statistics Canada figures showed today. Economists predicted a C$7.25 billion net investment, according to the median of four estimates compiled by Bloomberg News.

U.S. Inflation

Consumer prices in the U.S., Canada’s biggest trading partner, were unchanged in November as gasoline prices dropped. The report follows a 0.1 percent decrease in the prior month, a report from the Labor Department showed today in Washington.

Yields on Canada’s benchmark 10-year bonds fell six basis points, or 0.06 percentage point, to 1.86 percent. They earlier touched a record low of 1.837 percent. The price of the 3.25 percent securities maturing in June 2021 increased 55 cents to C$111.95.

Crude oil futures rose 0.4 percent to $93.78 a barrel in New York after reaching $92.52, the weakest since Nov. 3. The nation’s biggest export has dropped 6.1 percent this week.

The loonie has weakened 3.1 percent this year, according to Bloomberg Correlation-Weighted Currency Indexes, a gauge of 10 developed-nation currencies. The greenback has appreciated 1.7 percent, and the yen has added 4.8 percent.

The Canadian currency has fallen 3.9 percent against the greenback this year. It appreciated to a three-year high of 94.07 cents per U.S. dollar in July and tumbled to C$1.0658 in October.

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

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

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