Canada's Dollar Drops as Crude Oil Plunges, U.S. Economy Slows

By Chris Fournier

Oct. 15 (Bloomberg) -- Canada's currency weakened for a second day as crude oil fell below $75 a barrel and reports showed the U.S. economy may fall into recession.

The Canadian dollar has fallen 13.4 percent since July 11 when crude reached a record $147.27. Canada relies on commodities for about half its export revenue. Its largest trading partner is the U.S.

``We think the trends here are going to continue,'' said Steven Barrow, a currency strategist at Standard Bank Plc in London. The Canadian dollar is being ``undermined by what's happening in commodity prices and affected economically by the slowdown in the U.S.''



The Canadian dollar weakened as much as 0.6 percent to C$1.1688 per U.S. dollar, from C$1.1624 yesterday. It last traded at C$1.1664 at 9:22 a.m. in Toronto. One Canadian dollar buys 85.73 U.S. cents.

Sales at U.S. retailers dropped in September by the most in three years, the Commerce Department said today in Washington. The Federal Reserve's gauge of manufacturing in New York sank to a record low. The U.S. is in a recession, San Francisco Fed President Janet Yellen said in a speech last night.

Crude oil for November delivery fell as much as $3.66, or 4.7 percent, to $74.97 on the New York Mercantile Exchange.

Canadian Prime Minister Stephen Harper will return to office with more seats in Parliament, though still not enough for a majority government, after winning yesterday's election as the financial crisis spreads north from the U.S.

Harper's Conservative Party won 143 districts, according to preliminary results from Elections Canada. Stephane Dion's Liberal Party won 76, followed by the Bloc Quebecois with 50 and the New Democratic Party with 37. Harper held 127 seats in the 308-seat legislature before the vote was called.

The stronger showing for Harper, 49, strengthens his hand to control the legislative agenda and deal with the effects of the credit crunch. His first task will be to shore up banks and manage a slowdown in tax revenue that threatens to end a record streak of 11 consecutive budget surpluses.

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