Canadian Dollar Falls to 11-Day Low on European Crisis Concern
Canada’s dollar fell to the lowest level in 11 days against its U.S. counterpart on speculation Europe’s debt crisis is worsening as Spanish bond yields rose above 7.5 percent, dimming the outlook for the global economy.
Canada’s currency, which tends to appreciate on prospects for its commodity exports, dropped against a majority of its most-traded peers as crude oil fell more than $3 a barrel. Canadian 10-year bond yields reached a record low as investors fled to the safety of government assets.
“The major issue the global markets are focusing on is going to be Europe,” John Curran, a senior vice president at CanadianForex Ltd., an online foreign-exchange dealer, said in a telephone interview. “The Canadian dollar is just going to react to global events.”
Canada’s currency, nicknamed the loonie, declined 0.6 percent to C$1.0188 cents per U.S. dollar at 5 p.m. in Toronto, after touching the weakest level since July 12. It reached a record high C$1.2327 versus the euro. One Canadian dollar buys 98.15 U.S. cents.
Government bonds rose. Canada’s 10-year yield dropped three basis points, or 0.03 percentage point, to 1.58 percent. It touched 1.565 percent, the lowest yield since 1950, according to Bank of Canada and Bloomberg data. The 2.75 percent security maturing in June 2022 increased 29 cents at C$110.64.
Cnooc Ltd., China’s largest offshore oil and gas explorer, agreed to pay $15.1 billion in cash to acquire Canada’s Nexen Inc. The purchase is the biggest overseas acquisition by a Chinese company.
Nexen would give Cnooc assets in Canada, the U.K., West Africa and the Gulf of Mexico that produced 207,000 barrels a day in the second quarter, boosting the Chinese company’s output by about 20 percent.
The deal “highlights the overall psychology that there is tremendous interest in Canadian-based assets from foreign, particularly Chinese companies,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto, said in a telephone interview.
Retail sales are forecast to have increased 0.5 percent in May after a 0.5 percent drop in April, according to the median estimate of 25 economists surveyed by Bloomberg News before Statistics Canada reports data tomorrow in Ottawa.
The yield on Spain’s 10-year bond jumped to as much as 7.57 percent, the highest since the euro was created, while the cost of insuring against default on the nation’s sovereign debt also soared to a record before it auctions bills tomorrow.
“Rising risk aversion combined with global growth is fairly negative for the Canadian dollar,” Sutton said. “We’ve seen a shift right across currency markets to favor U.S. dollar and also seen a slight shift in terms of the bond market favoring bonds of higher-rated sovereigns.”
The loonie will end the year at C$1.02 per U.S. dollar, according to median estimate of 44 forecasters surveyed by Bloomberg News.
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