June 28 (Bloomberg) -- Canada’s dollar fell for a second day against its U.S. counterpart as demand for currencies of commodity-producing nations eased amid speculation Europe’s financial crisis will slow global growth.
The currency slid to a three-week low and was poised for the biggest monthly drop versus major peers in more than a year on concern demand for the nation’s raw materials will ease and keep the Bank of Canada from raising interest rates. European Union leaders opened a two-day summit on their debt crisis.
“There’s a combination of factors weighing on the Canadian dollar and other risk assets,” Emanuella Enenajor, an economist in Toronto at Canadian Imperial Bank of Commerce’s CIBC World Markets, said in a telephone interview. “One is the euro summit that started today, and the continuing expectation that we’re not going to solve anything at the summit. Also, oil prices are falling. It’s a bad day for resources.”
Canada’s currency, nicknamed the loonie, dropped 0.8 percent to C$1.0332 per U.S. dollar at 5 p.m. in Toronto, after falling as low as C$1.0363, the weakest since June 6. One Canadian dollar buys 96.79 cents.
“It’s risk off, plain and simple,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit, said in an e-mail.
While there’s been pressure to sell U.S. dollars around C$1.03, this may be overwhelmed by further risk aversion, Osborne said.
“My feeling is that we retest the C$1.0450 area at least in the next four to six weeks,” Osborne said.
Canada’s currency has tumbled 1.4 percent in June against nine developed-world counterparts, the most since the 1.7 percent drop in April 2011, according to Bloomberg Correlation-Weighted Indexes.
Government bonds rose, dragging the yield on the nation’s 10-year benchmark bonds down five basis points, or 0.05 percentage point, to 1.68 percent. It reached a record low of 1.615 percent on June 1. The price of the 2.75 percent bond due in June 2022 climbed 43 cents to C$109.77.
Canadian 10-year bonds yielded 10 basis points more than equivalent-maturity U.S. securities today, the least in a month.
EU leaders meet today and tomorrow for the 19th summit on the region’s debt crisis. They are due to discuss a plan seen playing out over more than a decade for closer European integration. The blueprint, written by European Council President Herman Van Rompuy, centers on common banking supervision and deposit insurance, along with a “criteria-based and phased” move toward joint debt issuance.
“You just have to trade the summit headline by headline,” Adam Cole, global head of foreign-exchange strategy at Royal Bank of Canada’s RBC Capital Markets, said by phone from London. “If you had to take a directional view and stick to it, expectations going into the summit are so low, there has to be some risk of a pleasant surprise, which would be risk-positive.”
RBC predicts the Canadian dollar will reach parity with the greenback by year-end.
Stocks pared losses as German Chancellor Angela Merkel canceled a planned press briefing, spurring speculation EU leaders were near agreement. The Standard & Poor’s 500 Index was down 0.2 percent after dropping as much as 1.4 percent.
Van Rompuy later said at a news conference leaders have agreed to spend 120 billion euros ($149 billion) to stimulate growth and create jobs.
Futures on crude oil, Canada’s largest export, fell 2.2 percent to $78.46 a barrel in New York. Brent crude declined 1.6 percent to $92.03 a barrel.
“A general tone of risk aversion has weighed on equities, oil prices and the Canadian dollar,” Camilla Sutton, chief currency strategist at Bank of Nova Scotia’s Scotiabank in Toronto, wrote in a note to clients.
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