Canada's Currency Poised for Third Weekly Drop on Oil's Decline

By Chris Fournier

Oct. 17 (Bloomberg) -- Canada's currency is poised for its third weekly decline, the longest losing streak since August, as the threat of a U.S. economic slowdown reduced commodity prices.

The Canadian currency has weakened 1.3 percent this week, as crude oil sank below $70 a barrel and the country's main stock index touched the lowest in four years. The U.S. is Canada's largest trading partner.

``We've seen pretty steady selling of the Canadian dollar,'' said Samarjit Shankar, director of global strategy for the foreign-exchange group in Boston at Bank of New York Mellon, the world's largest custodial bank. ``The flow of economic data is pretty negative in the U.S. We have the usual correlation in energy prices and the Canadian dollar. The U.S. slowdown is expected to have an impact on Canada's exports.''

The Canadian dollar depreciated as much as 1.3 percent today to C$1.1932 per U.S. dollar, from C$1.1783 yesterday. It last traded at C$1.1864 at 10:25 a.m. in Toronto. The currency traded at C$1.1732 on Oct. 10. One Canadian dollar buys 84.29 U.S. cents.

Crude oil for November delivery lost more than $5 this week and yesterday touched $68.57. It has lost more than half its value since reaching a record $147.27 on July 11.

The Canadian dollar has depreciated 15 percent since then.

`Very Difficult'

``We're advising holding on to the U.S. dollar,'' Shankar said. ``We're expecting the greenback to build on its gains. Currencies like the Canadian dollar are going to find it very difficult to get support.''

The Standard & Poor's/TSX Composite Index yesterday reached the lowest since October 2004. The Dow Jones Industrial Average fell 1.2 percent today.

The yield on the two-year government bond rose 5 basis points, or 0.05 percentage point, to 2.26 percent this week, the first gain in a month. The price of the 2.75 percent security due in December 2010 fell 12 cents during the period to C$101.

The 10-year note's yield decreased 9 basis points to 3.70 percent during the week. The price of the 4.25 percent security maturing in June 2018 climbed 71 cents to C$104.38.

The 10-year bond yielded 144 basis points more than the two- year security, down from 158 basis points a week ago, when the so-called yield curve reached the steepest since September 2004.

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