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Canada Dollar Reaches Lowest Since July Amid U.S. Budget Debate

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Feb. 19 (Bloomberg) -- The Canadian dollar reached the lowest level in almost seven months against its U.S. counterpart as commodities slipped and officials in the world’s largest economy seek to avoid $1.2 trillion in automatic budget cuts, known as sequestration, set to begin next month.

The currency declined against all but one of its 16 most-traded peers as crude oil, the nation’s biggest export, fluctuated and data showed foreign investors reduced their holdings of Canadian securities for the first time since June. Bank of Canada Governor Mark Carney said in a CTV News interview on Feb. 15 that recent signs of weakness in the housing market may persist over several years.

“Some of the Canadian-dollar weakness is due to muted action in commodities,” David Doyle, a strategist at Macquarie Capital Markets, said by phone from Toronto. “When you look at the commodity space, it could help to explain some of the weakness.”

The loonie, as the currency is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated as much as 0.3 percent to C$1.0138 per U.S. dollar, the weakest level since July 26, before trading little changed at 5 p.m. in Toronto. One Canadian dollar buys 98.84 U.S. cents.

Government bonds were little changed, Canada’s benchmark 10-year debt yielding 2.02 percent. The price of the 2.75 percent notes due in June 2022 decreased 4 cents to C$106.16.

‘Quite Weak’

Canada’s dollar has fallen 1.5 percent this year among the 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The U.S. dollar has gained 0.7 percent, and the euro has jumped 2.3 percent.

A technical measure indicated the loonie’s recent decline might turn around. The 14-day relative strength index against the U.S. dollar reached 31.4, near the 30 level that some traders see as sign that an asset may be about to reverse direction.

The loonie is “quite weak,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia, said by phone from Toronto. “Anything that’s negative for U.S. gross domestic product is negative for Canada.”

President Barack Obama called on Congress today to pass a smaller package of spending reductions and close loopholes to delay the budget cuts, known as sequestration, set to begin next month. Republicans have said they won’t consider raising revenue beyond the $650 billion tax increase on top earners the president won as part of the budget deal enacted on Jan. 2.

U.S. Spending

U.S. lawmakers agreed to the spending cuts, to be spread over nine years, as part of a 2011 deficit-reduction deal to raise the debt limit. The reductions were supposed to be so onerous that Congress and the president would never let them occur and would find a plan to replace them. The U.S. is Canada’s largest trade partner.

Standard and Poor’s GSCI Index of 24 raw materials fell as much as 0.6 percent. Western Texas Intermediate oil slid as much as 0.6 percent to $95.25 a barrel in New York after dropping 1.5 percent on Friday, the biggest decline on a closing basis since Feb. 4. Raw materials including oil account for about half of Canada’s export revenue.

Foreign investors in December reduced their holdings of Canadian securities for the first time in six months, government figures showed.

Net sales totaled C$1.92 billion ($1.89 billion) in the month, following November’s revised purchase of C$5.5 billion, Statistics Canada said today in Ottawa. For the year, foreign investors bought a net C$83.2 billion of Canadian securities, the lowest since 2008 and down from C$97.3 billion in 2011.

Carney’s View

The Bank of Canada’s Carney, in a CTV News interview last week, said the housing market for the world’s 11th-largest economy may weaken further.

“We have seen adjustment in the housing market, we think there’s a bit more to come in the next few years,” Carney said. He also said the recent rise in house prices, including a doubling in the value of his own home over the past five years, isn’t “normal.”

To contact the reporters on this story: Taylor Tepper in New York at ttepper2@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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