Canadian Dollar Depreciates to Lowest This Month Against

Canada’s dollar declined to the lowest level this month against the euro on speculation European leaders will contain the debt crisis and as concern about global growth saps demand for higher-risk assets.

The Canadian currency dropped versus a majority of its most-traded peers as crude oil, the nation’s largest export, fell for a second day and an index of global stocks was little changed. Finance Minister Jim Flaherty will deliver the nation’s federal budget tomorrow.

“We’re a bit more cautious” on commodity currencies, said Geoffrey Yu, a currency analyst at UBS AG in London, in a telephone interview. “We see dollar-Canada stronger,” he said, referring to a rising greenback.

Canada’s currency, nicknamed the loonie, was unchanged at C$1.3246 versus the 17-nation common currency at 10:21 a.m. in Toronto, after touching the weakest since Feb. 29. Against the U.S. dollar it was little changed at 99.57 cents. One Canadian dollar buys $1.0043.

Yu predicted the loonie will weaken to C$1.05 versus the U.S. dollar by the end of 2012. It will appreciate to C$1.20 against the euro, he forecast.

“We still see the euro lower,” said Yu. “The driver will still be negative growth surprises.”

Government bonds were little changed, with the yield on benchmark 10-year security rising one basis point, or 0.01 percentage point, to 2.13 percent. Canadian 10-year debt yielded six basis points lower than equivalent-maturity U.S. bonds, from nine basis points lower on March 14, the widest spread since April.

Flaherty Budget

The Standard & Poor’s 500 Index was little changed and crude oil, Canada’s biggest export, dropped 1.1 percent to $105.61 per barrel in New York.

Flaherty said earlier this month that his 2012 budget, to be released tomorrow in Ottawa, will focus primarily on bolstering growth in a bid to sustain the country’s recovery, rather than spending cuts.

The finance minister will report a deficit of between C$20 billion ($20.1 billion) and C$25 billion for the fiscal year ending this week, compared with an earlier forecast of C$31 billion, and will forecast bringing the country back to budget balance by the end of the 2015-16 fiscal year, a year ahead of schedule, Mark Chandler, Ian Pollick and Paul Borean, strategists in Toronto at RBC Capital Markets, wrote in a March 26 note to clients.

Relative Performance

The loonie’s 2.7 percent gain over the past six months is the third-best performance among 10 major currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The Australian dollar leads with an advance of 5.1 percent, and the New Zealand dollar is second-best at 4.4 percent higher.

Against the U.S. dollar, the loonie is headed for a 2.3 percent gain this quarter and a 0.6 percent loss this month. It rose 2.8 percent in the fourth quarter last year, after dropping 8.3 percent in the third.

The loonie has traded in a range of about 2 cents since the end of January, when it traded at C$1.0054 per U.S. dollar before appreciating to 98.42 cents on March 1 on optimism the euro-zone debt crisis was receding. The currency has averaged about C$1.0050 over two years, data compiled by Bloomberg show.

The U.S. dollar has breached the 50-day moving average at 99.70 cents, “however it remains near the center of a two-month range,” Eric Theoret, a currency strategist in Toronto at Bank of Nova Scotia’s Scotia Capital unit, wrote in a note to clients today. “Significant resistance is expected at the 200-day moving average,” he said, which he cited as C$1.007. resistance refers to the upper boundary of a trading range, where sell orders may be clustered.

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