Canadian Currency Tumbles the Most in 16 Months on Outlook for U.S.Economy

The currency, called the loonie for the image of the bird on the C$1 coin, reached the weakest since October versus the greenback as Statistics Canada data showed retail sales fell more than forecast in July. Ten- and 30-year government bond yields fell to record lows. The Fed said yesterday it will replace $400 billion of short-term debt with longer-term securities to spur growth, a move dubbed “Operation Twist.”

“The loonie is off on a major risk-aversion move,” said David Love, a trader of interest-rate derivatives at the brokerage Le Groupe Jitney Inc. in Montreal, in an e-mail. “Everyone thought the Fed would save the markets with ‘Operation Twist.’ It seems they have spooked the market more than anything.”

The Canadian currency depreciated 2 percent to C$1.0282 per U.S. dollar at 10:39 a.m. in Toronto, from C$1.0081 yesterday. It fell as much as 2.8 percent, its biggest intraday decline in 16 months, and touched C$1.0361, the weakest level since October. The four-day losing streak is the longest since a seven-day drop that ended Aug. 8. One Canadian dollar purchases 97.26 U.S. cents.

Bonds Climb

Canada’s government bonds climbed, pushing down yields on the 10-year note to as low as 2.056 percent and driving 30-year bond yields to 2.687 percent, the lowest levels on record.

Commodities and stocks tumbled after the Federal Open Market Committee said in a statement after a two-day meeting that risks to the economic outlook included “strains in global financial markets.” It said its shift in portfolio holdings should “put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative.”

“Ultimately there’s a fear about how much is left in the policy toolkit, and what’s out there to be saved,” Mark Chandler, head of fixed income at Royal Bank of Canada’s RBC Capital Markets unit in Toronto, said of the Fed’s move. “You’re left with the idea that people want more policy action, and there’s a frustration that it’s not there.”

November futures on crude oil, Canada’s biggest export, plunged 4.8 percent to $81.79 a barrel in New York. The Thomson Reuters/Jefferies CRB Index of raw materials fell 3.4 percent. Raw materials including oil account for about half of Canadian export revenue. About three-quarters of the nation’s exports go to the U.S.

The Standard & Poor’s 500 Index lost 2.3 percent.

Commodities Exporters

Currencies of other commodities exporters also declined against the U.S. dollar as investors sought safety. The Australian dollar lost 2.5 percent, New Zealand’s dollar fell 2.4 percent and the Mexican peso weakened 1 percent.

China’s manufacturing may shrink for a third month in September, a preliminary index of purchasing managers from HSBC Holdings Plc and Markit Economics showed, adding to risk aversion.

Canadian retail sales fell twice as fast as economists forecast following three prior monthly increases as demand for new automobiles and furniture dropped, a report today from Statistics Canada showed.

Sales decreased 0.6 percent, the fastest since April 2010, to a seasonally adjusted C$37.5 billion ($36.2 billion), the statistics agency said. Economists surveyed by Bloomberg News predicted a 0.3 percent decrease, according to the median of 25 responses.

‘Second-Half Rebound’

“This will not be enough to offset what is shaping up to be a strong GDP print for July,” Mazen Issa, Canada macro strategist at Toronto-Dominion Bank’s TD Securities unit in Toronto, wrote in a note to clients. “We still expect a second- half rebound, albeit a modest one.”

Prime Minister Stephen Harper told Bloomberg News in an interview in New York yesterday that Canadian policy makers are prepared to act to stem an appreciation of the country’s currency caused by speculative capital inflows. Bank of Canada Governor Mark Carney has often singled out the strength of the Canadian dollar as a “competitiveness challenge” to the country.

“In some sense, this decline in the loonie will be welcome,” said RBC’s Chandler. “We’ve had our policy makers talking about the strength of the currency. Be careful what you wish for: you don’t have it as much anymore.”




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