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Loonie Falls as Consumer Confidence Reading Cuts Risk Appeal

Canada’s dollar weakened against its U.S. counterpart after a measure of U.S. consumer confidence trailed economists’ forecasts, reducing the appeal of higher-yielding currencies.

The loonie, as Canada’s dollar is sometimes known, earlier touched the highest level in more than a month before heading for its first decline in three days. The Conference Board’s sentiment index fell to 50.4, below the median forecast of economists surveyed by Bloomberg News and the lowest level in five months.

“Stocks turned, commodities are off and we bounced off the support line at C$1.0257,” Firas Askari, head currency trader in Toronto at Bank of Montreal, Canada’s fourth-largest lender, said in an e-mail. “Fundamentals and technicals are both negative for the Canadian dollar today.” Support refers to the lower boundary of a trading range, in this case for the greenback versus the loonie, where buy orders may be clustered.

The Canadian currency declined 0.4 percent to C$1.0359 per U.S. dollar at 4:38 p.m. in Toronto, compared with C$1.0323 yesterday. It earlier touched C$1.0256, the highest level since June 22. One Canadian dollar buys 96.53 U.S. cents.

Government bonds fell, pushing the two-year’s yield up 3 basis points, or 0.03 percentage points, to 1.63 percent. The 2 percent security maturing in September 2012 fell 6 cents to C$100.76.

The 10-year’s yield rose 4 basis points to 3.27 percent.

Monthly Gain

Canada’s currency is headed for a 2.7 percent gain in July, the first monthly advance since March, as stocks and crude climb in the period.

The Standard & Poor’s 500 Index, which advanced as much as 0.5 percent, fell 0.1 percent. The S&P 500 is up more than 8 percent since June 30, and crude oil is 2.4 percent higher. The loonie is 84 percent correlated to movements in the S&P 500 and 65 percent to swings in the nearby crude futures contract, according to Bloomberg data. Readings of 100 percent signify a lock-step relationship.

“Equities and crude have both made nice gains and will be seeing some profit-taking,” Michael Leavitt, a Montreal-based institutional-derivatives broker at MF Global Holdings Ltd., said in an e-mail. “The Canadian dollar is not immune to that and should soften as well,” he said, referring to today’s decline. “However, the next push through today’s highs will see C$1.000 soon after.”

The loonie traded on a one-for-one basis with its U.S. counterpart on April 6 for the first time in almost two years. The currency rose to par with the greenback in September 2007 for the first time in three decades amid booming demand for raw materials. It lost 18 percent in 2008 as the credit crisis crushed demand for commodities.

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