Canada Dollar Declines as Crude Oil Drops, U.S. Dollar Rallies

By Chris Fournier

Sept. 2 (Bloomberg) -- Canada's currency fell after crude oil dropped to a five-month low and the U.S. dollar rose against other major currencies.

The Canadian dollar traded at C$1.0703 against its U.S. counterpart at 9:26 a.m. in Toronto, down 0.3 percent from C$1.0667 yesterday. One Canadian dollar buys 93.43 U.S. cents.

Crude oil for October delivery touched $105.46 a barrel on the New York Mercantile Exchange, the lowest since April 4, as Hurricane Gustav waned before touching down in Louisiana. Commodities, including oil, account for about half of Canada's export revenue.

``Lower crude price is one of the things causing weakness in the Canadian dollar,'' said David Watt, a senior currency strategist in Toronto at RBC Capital Markets Inc. ``Nervousness about Gustav hitting land restrained it. Now that the risk has dissipated, we're getting dollar-CAD breaking to the levels it probably was heading to late last week.'' Watt predicted Canada's currency will trade at C$1.06 by year-end.

The Canadian dollar also declined as its U.S. counterpart gained against all 16 of the most-actively traded currencies, including the euro, yen and British pound.

``It's a crude story for Canada primarily,'' said Firas Askari, head currency trader at BMO Capital Markets in Toronto. ``Gustav was more of a non-event, at least where crude is concerned.''

Canada's currency, dubbed the loonie because of the aquatic bird on the one-dollar coin, will slip to C$1.10 against the U.S. dollar by the end of 2009, according to the median forecast of economists surveyed by Bloomberg News.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net