Canada Dollar Falls Most in Three Weeks on Global Growth Concern

Canada’s dollar dropped the most in three weeks against its U.S. counterpart as concern Europe and the U.S. will fail to contain their fiscal crises damped appetite for higher-risk assets.

The Canadian currency touched a three-month low, trading below parity yesterday for a second day, amid bets Europe’s economic outlook is worsening. Investors sought refuge in the greenback this week on concern Greek bailout funds will be delayed and bets that U.S. lawmakers will push the economy into recession in a budget-deficit showdown called the fiscal cliff.

“The move this week has been very much a safe-haven bid,” Eric Lascelles, chief economist at Royal Bank of Canada’s RBC Global Asset Management, said in a phone interview from Toronto. “Markets have felt gloomy this week. It’s a function of the changing focus onto the fiscal cliff and equally recognizing that as much as Europe has made massive strides in the past six to nine months, lately there has been a bit of complacency.”

Canada’s currency, called the loonie for the image of the aquatic bird on the C$1 coin, declined 0.6 percent to C$1.0016 per U.S. dollar this week in Toronto, the biggest drop since the five days ended Oct. 19. It reached C$1.0033 yesterday, the weakest since Aug. 3. One Canadian dollar buys 99.84 U.S. cents.

Futures traders decreased their bets that the Canadian dollar will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission showed.

Net Longs

The difference in the number of wagers by hedge funds and other large speculators on an advance in the Canadian dollar compared with those on a drop -- so-called net longs -- was 74,762 on Nov. 6, compared with 78,771 a week earlier.

Canada’s government bonds rose, pushing the yield on the 10-year benchmark note down six basis points, or 0.06 percentage point, to 1.71 percent. It touched 1.68 percent yesterday, the lowest level since Aug. 3. The price of the 2.75 percent note due in June 2022 increased 49 cents to C$109.09.

The loonie fell this week as risk appetite ebbed after a European Union official said euro-area finance ministers won’t decide to release 31.5 billion euros ($40.1 billion) of aid for Greece that has been frozen since June when they meet in Brussels on Nov. 12. They are waiting for a final report on Greece’s efforts to meet conditions before taking action, the official said on condition of anonymity because the deliberations are private.

Investors also sought safety as the re-election of President Barack Obama and a split Congress this week spurred concern lawmakers will be unable to compromise on the budget of Canada’s biggest trade partner.

Deficit Showdown

The U.S. faces $1.2 trillion in mandated spending cuts and tax increases over a decade starting Jan. 1 if Congress can’t agree to reduce the deficit, which totaled $1.09 trillion in fiscal 2012. The Congressional Budget Office has said the U.S. economy would slow by as much as 0.5 percent next year if Congress fails to prevent the measures from kicking in.

Fitch Ratings said the U.S. economy will probably contract if Congress fails to act. Fitch Managing Director Ed Parker said in an interview in Istanbul on Nov. 8 it would be “a wholly avoidable, unnecessary recession.”

Stocks slid, with the Standard & Poor’s 500 Index falling 2.4 percent, the biggest weekly decline since June.

Canadian manufacturing-sales growth slowed in September to 0.3 percent, from 1.5 percent a month earlier, economists in a Bloomberg survey forecast before Statistics Canada reports the data on Nov. 15.

Trade Deficit

The nation’s trade deficit unexpectedly narrowed in September, data from the statistics agency showed on Nov. 8, as rising oil prices buffered a weakening export outlook for the world’s 11th-largest economy. Canada, which sits on the world’s third-largest pool of oil reserves, had an C$826 million ($829 million) deficit, down from a revised C$1.52 billion gap in August, the data showed. Crude is the nation’s biggest export.

Crude-oil futures reached a four-month high on Sept. 14 of $100.42 a barrel in New York. They traded yesterday at $86.07.

The loonie has climbed 1 percent this year against nine developed-nation counterparts tracked by Bloomberg Correlation- Weighted Indexes. The U.S. dollar has dropped 1.2 percent, and the yen has slid 4.8 percent.

To contact the reporter on this story: 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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