By Agency Reporter

Monday, 22 Nov 2010

MONTREAL: Canada‘s dollar fell for a second week against its United States counterpart as the biggest five-day decrease in crude oil since August reduced demand for assets related to economic growth.

According to a report by Bloomberg on Saturday, the loonie declined versus most of its major counterparts on concern a stalled recovery in the US, the nation‘s biggest trading partner, and a move by China to cap growth will encourage the Bank of Canada to keep borrowing costs lower for a longer period of time.

Retail sales, excluding autos, rose in Canada at a slower pace in September, a government report is forecast by economists to show.

According to the senior currency strategist, Royal Bank of Canada‘s RBC Capital unit, Mr. David Watt, ”The key thing is still the US economic outlook, and it still looks choppy.

”It‘s not like the US is going to hit escape velocity anytime soon,” he added.

The Canadian currency depreciated by 0.4 per cent to C$1.0168 per US dollar on Friday, from C$1.0123 on November 12. One Canadian dollar buys 98.35 US cents.

The loonie, as the currency is known for the image of the aquatic bird on the C$1 coin, touched C$1.0262 on November 17, the weakest level since October 28. It slid by 0.3 per cent to C$1.3903 versus the euro.

The Bank of Canada will hold its policy rate at one per cent through the end of the second quarter, according to the median forecast of 22 economists in a Bloomberg News survey this month. The median forecast in October was for the target to rise to 1.50 per cent by then.

A chief economist strategist, Dominion Bank‘s security unit, Mr. Eric Lascelles, ”There‘s been a pretty notable shift, the Bank of Canada is perceived to be sitting on hold is not a helpful thing for the currency.”

Canadian retail sales excluding autos increased by 0.3 per cent in September after a 0.4 per cent gain in the previous month, according to the median forecast of 19 economists in a Bloomberg News survey. The report from Statistics Canada is scheduled to be released November 23.

A US Labor Department report showed last week that consumer prices excluding food and fuel increased by 0.6 per cent last month from October 2009 in the smallest year-over-year gain since at least 1958.

Builders began work on the fewest homes since a record low reached in April 2009, the Commerce Department said. Canada ships about two thirds of its exports to the US

The Canadian dollar weakened versus the greenback on the prospect for a slowing global economy. China ordered banks to set aside larger reserves for the second time in two weeks, draining cash from the financial system to limit inflation and asset-bubble risks in the world‘s fastest-growing major economy.

Crude oil dropped by 3.9 per cent to $81.60 a barrel in the biggest weekly drop since August 13, when it dropped by 6.6 per cent. The MSCI World Index of developed-world stock markets was little changed after falling by 2.2 per cent in the previous week.

Canada‘s 10-year bonds fell this week, pushing the yield up 13 basis points, or 0.13 percentage point, to 3.15 per cent. The price of the 3.5 per cent security maturing in June 2020 dropped C$1.11 to C$102.90. The yield touched 3.16 per cent this week, the highest level since August 13.

The loonie is still headed for a 3.6 percent advance this year versus the greenback, which has suffered against its major counterparts as the Federal Reserve carries out quantitative easing to spur growth. The Fed announced $600 billion in bond purchases on November 3.

 

Source: Punch