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Canadian Currency Weakens Toward Parity Versus Dollar as Retail Sales Drop

Canada’s dollar weakened versus its U.S. counterpart after data showed retail sales fell in December and currencies of commodity-exporting nations slid on concern a bailout hasn’t resolved Greece’s long-term debt crisis.

The Canadian currency fell to within half a cent of parity with the greenback, which fluctuated against the euro on concern Europe will require further political measures to resolve its fiscal turmoil. U.S. stocks were little changed, and global stocks declined.

“The risk-off environment is weakening the appeal of the Canadian dollar,” said David Song, a currency analyst in New York at DailyFX.com, the research unit of FXCM Inc., an online currency-trading service. “The downtick in retail sales is instilling a bearish outlook for the Canadian dollar as it damps the prospects for future growth.”

The loonie, as the currency is known for the image of the waterfowl on the C$1 coin, depreciated 0.3 percent to 99.69 cents per U.S. dollar at 5 p.m. in Toronto, after touching as low as 99.76 cents. One Canadian dollar buys $1.003. The loonie has appreciated 0.6 percent this month versus the greenback, underperforming nine of its 16 most-traded peers.

The currency will weaken to C$1.03 by the end of this quarter and C$1.06 by the end of June, Osborne predicted.

Canada’s dollar fell for a fourth day against the euro, weakening 0.3 percent to C$1.3193. The greenback rose 0.1 percent versus the shared currency, closing at $1.3234, after strengthening 0.4 percent earlier and losing 0.4 percent.

Bonds Fall

Government bonds dropped, pushing two-year note yields up four basis points, or 0.04 percentage point, to 1.11 percent. They touched 1.12 percent, the highest level since Oct. 28. The price of the 1 percent securities due in February 2014 increased 7 cents to C$99.79.

Retail sales declined 0.2 percent in December, falling for the first time in five months, Statistics Canada data showed today in Ottawa. That matched the median of 24 forecasts compiled by Bloomberg.

The MSCI World Index of stocks in developed nations was down 0.1 percent after declining earlier as much as 0.4 percent. The gauge has gained 9.5 percent in 2012. The Standard & Poor’s 500 Index was little changed after gaining earlier as corporate earnings tempered concern Greece still faces turmoil.

The loonie weakened even as crude oil, Canada’s biggest export, climbed to a nine-month high. Crude for March delivery touched $106.07 a barrel in New York, the most since May.

Correlation Lost

“The historical correlation between oil and the Canadian dollar has broken down recently,” said DailyFX.com’s Song. “The Canadian dollar will move more with Canadian fundamentals over the near term.”

The one-month correlation coefficient between crude oil and the Canadian dollar was 0.45 today, down from 0.84 in October. A reading of 1 indicates the measures move in lockstep.

The Australian and New Zealand dollars were worst performers today among the U.S. currency’s 16 most-traded peers tracked by Bloomberg. Both countries, like Canada, export raw materials. The loonie fell versus nine.

European finance ministers approved 130 billion euros ($173 billion) in aid for Greece by tapping into European Central Bank profits and coaxing investors into providing more debt relief to shield the region from a default. Greece’s debt may still balloon to 160 percent of gross domestic product in a worst-case scenario, analysis by the International Monetary Fund and European officials indicated.

“It makes it hard to see what good news could spark a renewed upswing in risk sentiment,” said David Watt, senior currency strategist at Royal Bank of Canada’s RBC Capital Markets unit in Toronto. “Domestic factors are still generally secondary.”

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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