Canada's Dollar Falls to Four-Year Low on Outlook for Growth

By Chris Fournier

Oct. 23 (Bloomberg) -- Canada's currency dropped to the lowest in four years on speculation worldwide economic growth will slow as U.S. investors sell assets.

The loonie, as the currency is known because of the aquatic bird on the one-dollar coin, is poised for a fourth straight weekly decline, its longest losing streak in almost a year. The currency has lost 16 percent this month as commodities including crude oil have plummeted.

``The general bearishness on the global growth outlook is pressuring commodity currencies,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``We continue to see position covering and repatriation back to the U.S. driving the U.S. dollar higher across the board. The Canadian dollar is looking pretty soggy here.''

The Canadian dollar depreciated by as much as 1.6 percent to C$1.2743 per U.S. dollar, the lowest since Oct. 4, 2004. It weakened 3.2 percent yesterday to C$1.2539, its biggest one-day decline since at least 1971 when Bloomberg records begin. The currency has dropped 6.4 percent since Oct. 17. It fell six straight weeks to Dec. 14. It traded at C$1.2615 at 10:28 a.m. in Toronto. One Canadian dollar buys 79.27 U.S. cents.

The U.S. dollar rose against most of the 16 most-actively traded currencies.

`Somber Mood'

``The broader global growth concerns remain, and that's very much reflected in the continued sell-off in equity markets globally,'' said Matthew Strauss, senior currency strategist in Toronto at RBC Capital Markets Inc., a unit of Canada's biggest bank by assets. ``That somber mood is still weighing on the Canadian dollar. Calling a top now would be more of a gamble than a scientific forecast.''

The MSCI World Index, a gauge of 23 developed nations, lost 2.1 percent to 891.16. The index has plunged 44 percent in 2008 as credit-related losses and writedowns topped $650 billion in the worst financial crisis since the Great Depression.

``The credit crunch is the genesis of all this,'' Osborne said. ``It looks like it's going to continue. There are really quite exceptional moves that we're seeing in the currency market, but particularly in the Canadian currency.''

Osborne predicts a weekly close beyond C$1.2730 could indicate ``another big leg up in the U.S. dollar versus the Canadian dollar.''

`Mild Recession'

Canadian exporters will be hobbled by a U.S. recession, a world economy that ``appears to be heading into a mild recession,'' and lower prices for the country's exported commodities, the Bank of Canada said on Oct. 21.

The Canadian government will guarantee short-term borrowing by the country's commercial banks in an effort to revive lending and match support offered by other governments amid the global credit crisis, Finance Minister Jim Flaherty told reporters today in Ottawa.

So far this month, Canada's currency has outperformed those of Australia, Norway, Mexico, Brazil and South Africa. Against the loonie, the Aussie weakened 0.4 percent, the krone fell 2 percent, the peso was down 5.4 percent, the real depreciated 3.6 percent, and the rand slumped 13.3 percent.

The Reuters/Jefferies CRB Index of 19 commodities fell 1.3, or 0.5 percent, to 264.81 and is down 36 percent in the past three months.

Raw materials such as gold account for 60 percent of Australia's exports. Oil is Norway's biggest export, and it generates about 40 percent of government revenue in Mexico. Brazil is the world's biggest sugar producer and exporter. South Africa produces almost 80 percent of the world's platinum and about 10 percent of its gold.

Export Revenue

Crude and natural gas combined accounted for 17 percent of Canada's export revenue in 2007, according to Statistics Canada.

Moves in the loonie most closely track fluctuations in the price of base metals, according to George Davis, chief technical analyst at RBC Capital Markets. Davis, in a research note, cited movements of an index comprising aluminum, nickel, zinc and copper as providing the highest correlation to changes in the Canadian dollar, followed by shifts in the price of crude oil. The MSCI World Index provided the third-strongest correlation, Davis said.

Copper fell below $4,000 a metric ton for the first time since November 2005, nickel's the cheapest since August 2003 and zinc is the lowest since November 2004. Aluminum dropped to a three-year low.

The yield on the 10-year Government of Canada bond slipped 2 basis points, or 0.02 percentage point, to 3.58 percent, the seventh consecutive daily drop. The price of the 4.25 percent security maturing in June 2018 climbed 16 cents to C$105.39.

The yield on the two-year government bond was little changed at 2.10 percent. The price of the 2.75 percent security due in December 2010 fell 1 cent to C$101.33.

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