Canadian Dollar Weakens for 2nd Day as Traders Pare Risk Assets

Canada’s dollar fell for a second day against its U.S. counterpart as demand for currencies of commodity-producing nations eased amid speculation Europe’s financial crisis will slow global growth.

The currency slid to a three-week low and was poised for the biggest monthly drop versus major peers in more than a year on concern demand for the nation’s raw materials will ease and keep the Bank of Canada from raising interest rates. European Union leaders opened a two-day summit on their debt crisis.

“There’s a combination of factors weighing on the Canadian dollar and other risk assets,” Emanuella Enenajor, an economist in Toronto at Canadian Imperial Bank of Commerce’s CIBC World Markets, said in a telephone interview. “One is the euro summit that started today, and the continuing expectation that we’re not going to solve anything at the summit. Also, oil prices are falling. It’s a bad day for resources.”

Canada’s currency, nicknamed the loonie, dropped 0.8 percent to C$1.0332 per U.S. dollar at 5 p.m. in Toronto, after falling as low as C$1.0363, the weakest since June 6. One Canadian dollar buys 96.79 cents.

“It’s risk off, plain and simple,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank (TD)’s TD Securities unit, said in an e-mail.

While there’s been pressure to sell U.S. dollars around C$1.03, this may be overwhelmed by further risk aversion, Osborne said.

“My feeling is that we retest the C$1.0450 area at least in the next four to six weeks,” Osborne said.

June Drop

Canada’s currency has tumbled 1.4 percent in June against nine developed-world counterparts, the most since the 1.7 percent drop in April 2011, according to Bloomberg Correlation- Weighted Indexes.

Government bonds rose, dragging the yield on the nation’s 10-year benchmark bonds down five basis points, or 0.05 percentage point, to 1.68 percent. It reached a record low of 1.615 percent on June 1. The price of the 2.75 percent bond due in June 2022 climbed 43 cents to C$109.77.

Canadian 10-year bonds yielded 10 basis points more than equivalent-maturity U.S. securities today, the least in a month.

EU leaders meet today and tomorrow for the 19th summit on the region’s debt crisis. They are due to discuss a plan seen playing out over more than a decade for closer European integration. The blueprint, written by European Council President Herman Van Rompuy, centers on common banking supervision and deposit insurance, along with a “criteria-based and phased” move toward joint debt issuance.

Summit Headlines

“You just have to trade the summit headline by headline,” Adam Cole, global head of foreign-exchange strategy at Royal Bank of Canada’s RBC Capital Markets, said by phone from London. “If you had to take a directional view and stick to it, expectations going into the summit are so low, there has to be some risk of a pleasant surprise, which would be risk- positive.”

RBC predicts the Canadian dollar will reach parity with the greenback by year-end.

Stocks pared losses as German Chancellor Angela Merkel canceled a planned press briefing, spurring speculation EU leaders were near agreement. The Standard & Poor’s 500 Index was down 0.2 percent after dropping as much as 1.4 percent.

Van Rompuy later said at a news conference leaders have agreed to spend 120 billion euros ($149 billion) to stimulate growth and create jobs.

Futures on crude oil, Canada’s largest export, fell 2.2 percent to $78.46 a barrel in New York. Brent crude declined 1.6 percent to $92.03 a barrel.

“A general tone of risk aversion has weighed on equities, oil prices and the Canadian dollar,” Camilla Sutton, chief currency strategist at Bank of Nova Scotia (BNS)’s Scotiabank in Toronto, wrote in a note to clients.

To contact the reporter on this story: Chris Fournier in Halifax at cfournier3@bloomberg.net

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

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