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Canadian Dollar Snaps Six Week Streak as Growth Concern Rises

Canada’s dollar posted its first weekly decline versus its U.S. counterpart since the start of July as concern increases that the nation’s economic expansion is losing momentum.

The Canadian currency trimmed the loss today as comments from Federal Reserve Chairman Ben S. Bernanke renewed optimism the U.S. central bank will provided more monetary stimulus to Canada’s biggest trading partner. The currency fell 0.3 percent over five days versus the greenback after a retail sales report earlier this week trailed economists’ expectations, capping a series of weaker economic reports.

“The Canadian dollar has lagged,” said Mark Chandler, head of fixed-income strategy at Royal Bank of Canada’s RBC Capital Markets unit in Toronto. “It’s mostly a hangover from last week’s inflation data and this week’s retail sales.”

Canada’s currency, nicknamed the loonie after the image of the waterfowl on the C$1 coin, rose 0.2 percent to 99.23 cents per U.S. dollar at 5 p.m. in Toronto. One Canadian dollar buys $1.0077. The currency had strengthened for six consecutive weeks, last dropping against the greenback in the five days ended July 6.

Canada’s currency touched 98.43 cents per U.S. dollar on Aug. 21, the strongest level since May 3 amid speculation European policy makers are close to putting a recovery plan in place. Global stocks fell earlier today after two central bank officials said the European Central Bank may wait until a German court ruling before unveiling full details of a plan to buy government bonds.

Equity Correlation

The MSCI All Country World Index was little changed after dropping as much as 0.8 percent today.

The loonie has a 30-day correlation coefficient of 0.79 with the MSCI index. A reading of 1 would indicate they move in lockstep. The correlation with crude oil is 0.62.

“The Canadian dollar is trading along with other risk currencies that started off stronger, but couldn’t maintain their bid given the data,” said Firas Askari, head currency trader in Toronto at Bank of Montreal.

Implied volatility for one-month options on the U.S. dollar versus the Canadian currency remained close to the lowest level since May 2007 at 6.5 percent. The five-year average is 12 percent. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings.

Government bonds were little changed, with the yield on 10-year bonds rising less than one basis point to 1.83 percent. The price of the 2.75 percent securities maturing in June 2022 fell 6 cents to C$108.21.

Statistics Canada said earlier this week that wholesale sales fell 0.1 percent and retail sales dropped 0.4 percent in June, versus median estimates in separate Bloomberg News surveys calling for gains of 0.3 percent and 0.1 percent.

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