Canadian Dollar Depreciates Through Parity as Global Risk Aversion Rises

Canada’s dollar depreciated versus its U.S. counterpart for a third day as concern the global economy is slowing sapped demand for higher-risk assets such as stocks and commodities.

The currency fell through parity, touching C$1.0029, the weakest level since Feb. 27, before the nation’s central bank meets in two days to set interest rates. Crude oil, Canada’s biggest export, weakened after Europe’s economy shrank in the fourth quarter.

“Keep an eye on C$1.0050 -- break that, and you could see some long Canadian-dollar squaring,” Jack Spitz, managing director of foreign exchange at National Bank of Canada (NA) in Toronto, said referring to the closing of long positions, or bets that the currency would appreciate. “If we get another night of risk paring, then we could absolutely see an attempt at it tomorrow.”

Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, fell 0.7 percent to C$1.0019 per U.S. dollar at 5 p.m. in Toronto. It declined as much as 0.8 percent, the most in an intraday basis since Feb. 10. One Canadian dollar purchases 99.81 U.S. cents.

Government bonds rose, pushing benchmark 10-year note yields down four basis points, or 0.04 percentage point, to 1.93 percent. The 3.25 percent securities due in June 2021 increased 38 cents to C$111.10.

Two-year yields fell five basis points to 1.07 percent. Canadian government bonds are down less than 0.1 percent this year, versus a loss of 0.9 percent through the same period last year.

Bank of Canada

Europe’s economy contracted 0.3 percent in the fourth quarter, the European Union’s statistics office said, following data yesterday that showed U.S. factory orders declined and China’s announcement of the lowest growth target since 2004.

“Markets have continued to retreat and risk appetite is under pressure,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “Currencies correlated with risk appetite or commodities, which includes the Canadian dollar on both counts, are underperforming.”

The Bank of Canada will leave its benchmark interest rate at 1 percent, where it’s stood for more than a year, according to the weighted average of 25 responses in a Bloomberg survey.

Policy makers led by Governor Mark Carney said after the bank’s most recent decision on Jan. 17 growth in Canada and the U.S. will be “more modest” than forecast in October as European leaders struggle to contain a debt crisis.

‘Playing the Range’

“I would expect it should be relative steady as she goes,” Stretch said, referring to the central bank’s March 8 decision. “I wouldn’t be expecting too much of a surprise later in the week.”

Stretch recommends “playing the range” in the Canadian dollar between 99.20 cents and C$1.0040 versus the greenback. He said the Canadian currency has potential to make further gains versus the Australian dollar.

The loonie rose for a third day versus the so-called Aussie, trading up 0.4 percent to C$1.0573 after touching C$1.0550, the strongest since Jan. 20.

“Canada, at this point, could have more legs,” than the Australian dollar, Alessio de Longis, a portfolio manager at Oppenheimer Funds, said in a Bloomberg Television interview on “Surveillance Midday” with Tom Keene. “Given the slowdown we’re seeing in China, and their expectations for lower growth, the Canadian dollar probably offers more potential.” China is Australia’s biggest trading partner.

The dollars of Canada and Australia are benefiting from higher energy prices and an “insatiable demand” for assets that carry AAA ratings, de Longis said.

The Canadian dollar has gained 0.9 percents over the past three months, the third-best performer after the dollars of Australia and New Zealand at 2.7 percent and 4.6 percent, according to Bloomberg Correlation Weighted Indexes.

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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