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Canadian Dollar Declines to Lowest This Month on Fed Statement

Canada’s dollar dropped to its weakest level this month after the Federal Reserve supported the U.S. currency by refraining from taking new action to lower borrowing costs.

The loonie, as the Canadian currency is known, fell earlier after German Chancellor Angela Merkel said a cap on the European Stability Mechanism will stay in place. Canadian government 10-year bonds rose after the Fed’s statement.

“The absence of the hint that they might loosen further in the future creates a very small, knee-jerk U.S. dollar-positive reaction,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto.

The loonie depreciated 0.7 percent to C$1.0343 per U.S. dollar at 5 p.m. Toronto time after reaching C$1.0349, its weakest since Nov. 30. One Canadian dollar buys 96.68 U.S. cents. The Canadian currency rose 0.5 percent to C$1.3477 against the euro.

Canadian 10-year bond yields fell three basis points, or 0.03 percentage point, to 1.97 percent. The 3.25 percent securities maturing in June 2021 increased 30 cents to C$110.96.

Fed policy makers said the U.S. economy is maintaining its expansion even as the global economy slows. The central bank left unchanged its statement that economic conditions are likely to warrant “exceptionally low” interest rates “at least through mid-2013.” The U.S. is Canada’s biggest trading partner.

The U.S. central bank lowered its target rate for overnight lending between banks to a range of zero to 0.25 percent in December 2008.

Stock Markets

The Standard & Poor’s 500 Index slid 0.9 percent after earlier rising 1.1 percent. The S&P/TSX Composite Index, Canada’s equity benchmark, decreased 1.2 percent.

U.S. retail sales rose 0.2 percent in November and were revised to 0.6 percent higher in the previous month, from 0.5 percent, the Commerce Department reported today.

During a meeting of Germany’s Christian Democratic caucus in Berlin, Merkel confirmed the 500 billion-euro ($656 billion) limit on the European Stability Mechanism as agreed to by European Union leaders at a summit last week, two officials said on condition of anonymity because the discussions are private.

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