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Canadian Dollar Falls on China Slowdown as Earnings Crimp

The Canadian dollar fell for a second day against its U.S. counterpart on concern slowing Chinese growth will hurt demand for commodities such as oil and gold.

The loonie, as the currency is known for the image of the aquatic bird on the C$1 coin, weakened against a majority of its most-traded peers after Alcoa Inc. (AA) reduced its forecast for aluminum exports to China, the world’s biggest consumer of metals and energy. Energy and raw-material producers led losses in the Standard & Poor’s 500 Index. Canada derives about half its export revenue from raw materials.

“On a day when equities are taking it on the chin, rates are probably going to stay better bid and the U.S. dollar will strengthen against the Canadian dollar as a result,” Ian Pollick, a fixed-income strategist in Toronto at Royal Bank of Canada’s RBC Capital Markets unit, said in a phone interview.

Canada’s currency closed 0.4 percent lower at 98.18 cents per U.S. dollar at 5 p.m. in Toronto. One Canadian dollar buys $1.0185.

The precious metals component of Standard & Poor’s GSCI Spot Index of 24 raw materials fell as much as 0.4 percent, with lead and aluminum declining as much as 2.4 percent. The S&P 500 Index of stocks dropped 0.6 percent.

Third-quarter profits and sales for the S&P 500 (SPX) probably fell in unison for the first time in three years, according to analysts’ forecasts compiled by Bloomberg.

Earnings Jitters

Earnings at S&P 500 companies probably slipped 1.7 percent last quarter as declines of more than 21 percent in energy and commodity company profits overshadow growth in income at banks. Shares of Alcoa, the largest U.S. aluminum producer and the first company in the Dow Jones Industrial Average to report results for last quarter, lost 4.7 percent even after posting earnings and sales that exceeded analysts’ estimates.

China’s economic expansion will slow to 7.7 percent this year from 9.3 percent in 2011, according to the median forecast of 45 economists surveyed by Bloomberg.

“This is the market jittery ahead of earnings season,” Greg Anderson, the North American head of Group-of-10 currency strategy at Citigroup Inc. in New York, said in a telephone interview. “We’re likely to see that choppiness continue. We still think the Canadian dollar is a safer trade relative to” other commodity-driven currencies, including the Australian and New Zealand dollars.

Bond Sales

Canadian government bonds were little changed, with the yield on the 10-year benchmark note at 1.8 percent. The price of 2.75 percent note maturing in June 2022 was C$108.34.

The Bank of Canada sold C$2.7 billion ($2.8 billion) in three-year bonds today, with an average yield of 1.282 percent.

The total bid was C$7.87 billion, for a bid-to-cover ratio of 2.92, measuring the level of bids versus the amount of debt for sale. The last sale of this note maturity on Aug. 29 was C$2.9 billion and yielded 1.278 percent with a bid-to-cover ratio of 2.73.

Canada’s dollar has gained 2.4 percent this year against nine developed-nation counterparts tracked by Bloomberg Correlation-Weighted Currency Indexes. The greenback has dropped 1.9 percent.

To contact the reporters on this story: Cecile Gutscher in Toronto at cgutscher@bloomberg.net; Katia Dmitrieva in Toronto at edmitrieva1@bloomberg.net

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

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