Canada’s dollar weakened to a four-month low versus its U.S. counterpart as concern European Union leaders will fail to introduce new measures to stem the euro bloc’s debt crisis damped demand for higher-yielding assets.
The currency fell versus half of its 16 most-traded peers as a gain in retail sales failed to boost bets the Bank of Canada will raise interest rates by year-end. Investors sought safety as EU-nation leaders met in Brussels at a dinner. New Greek elections are scheduled for June 17 after an anti-austerity party took second place in an inconclusive round of voting on May 6.
“The market is really confused about Greece and with the talk about whether they want to stay within the euro,” said Shane Enright, executive director at Canadian Imperial Bank of Commerce’s CIBC World Markets unit in Toronto. “Canada’s fundamentals are pretty strong, so in this risk-off environment, Canada is one of the less-worse currency choices.”
The Canadian dollar, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, depreciated 0.5 percent to C$1.0252 per U.S. dollar at 5 p.m. in Toronto. It touched C$1.0296, the weakest level since Jan. 9. One Canadian dollar purchases 97.54 U.S. cents.
Commodities fell, damping demand for assets linked to growth. July futures for crude oil, Canada’s biggest export, touched a six-month low of $89.28 a barrel in New York, and the Standard & Poor’s GSCI Index of 24 raw materials dropped 1.9 percent. Raw materials including oil account for about half of Canada’s export revenue.
Canada’s currency pared losses as U.S. stocks reversed a retreat. The S&P 500 Index ended the day up 0.2 percent after tumbling as much as 1.5 percent.
Loonie Versus Aussie
The loonie reached the strongest level versus its Australian counterpart since October, advancing as much as 0.6 percent to 99.56 Canadian cents before trading at 99.92 cents, up 0.2 percent. Australia is also a commodities exporter.
The 14-day relative-strength index for the Canadian dollar versus the greenback fell to 29, suggesting the loonie is headed for a reversal of recent losses. A reading below 30 signals a currency is oversold and may be poised for a correction.
Canada’s dollar has weakened 4.3 percent versus the greenback since touching a seven-month high of 98 cents April 27. The currency may slide to C$1.0350 if it depreciates through C$1.0250, Toronto-Dominion’s Osborne said.
Canadian government bonds rose, pushing the yield on benchmark 10-year notes down three basis points, or 0.03 percentage point, to 1.88 percent. It touched 1.85 percent, the lowest level since December. Two-year yields tumbled six basis points to 1.15 percent.
The government sold C$1.4 billion ($1.36 billion) of 30-year bonds, fetching an average yield of 2.413 percent, according to a statement on a Bank of Canada website. The 3.5 percent securities mature in December 2045.
The auction drew C$3.6 billion in bids for the debt, making the ratio of the amount bid to the amount sold 2.59 times. That compared with an average bid-to-cover ratio of 2.58 at the past four sales of long-term securities.
The loonie remained lower after Statistics Canada reported that retail sales increased 0.4 percent in March to C$39.1 billion following a 0.2 percent drop the prior month. Economists surveyed by Bloomberg News forecast an increase of 0.3 percent.
Bank of Canada Governor Mark Carney said last month interest-rate increases may be necessary as growth and inflation outpace his earlier projections, and as slack disappears from the economy. Policy makers have kept the benchmark rate at 1 percent since September 2010.
Odds of a rate boost by year-end were at 18 percent today, compared with 41 percent yesterday, according to Bloomberg calculations based on trading in overnight index swaps.
The yen rose against most major currencies today as investors sought safety on the prospect of Greece’s exit from the euro.
“We’ll take our cues from what is going on in Europe, as it dictates market sentiment, but for now it seems pretty negative,” said Matthew Perrier, Toronto-based director of foreign exchange at Bank of Montreal. “The market is certainly trading with a nervous bias.”
The loonie advanced 0.3 percent over the past month against nine developed-nation peers monitored by Bloomberg Correlation-Weighted Indexes. The U.S. dollar strengthened 4.6 percent, and the yen climbed 7.3 percent amid refuge demand. The euro weakened 0.8 percent.
Italian Prime Minister Mario Monti said today’s meeting will focus on debating ideas that will presented at the next EU leaders’ meeting in June and won’t result in decisions. He spoke as he arrived for the session.
French President Francois Hollande, who took office last week, challenged Germany’s handling of the financial crisis, calling for joint borrowing and looser conditions for cash injections into struggling banks. He spoke to reporters before heading to Brussels for his first European summit.
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