Canada's Dollar Falls to the Lowest in More Than Three Years

By Chris Fournier

Oct. 22 (Bloomberg) -- Canada's currency dropped to the lowest since June 2005 as the U.S. dollar strengthened, commodities including crude oil fell and speculation mounted the country's central bank would extend interest-rate cuts.

The loonie, as the currency is known because of the aquatic bird on the one-dollar coin, is poised for its worst monthly performance since at least 1971, when Bloomberg records begin. It has depreciated 15 percent in October.

``It's a question of not catching a falling knife,'' 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. ``It's still the almighty dollar. There's net selling across the board. With the outlook for monetary policy, combined with the continued softness in oil prices and the concerns about global growth, the loonie is taking the brunt of it.''

The Canadian dollar depreciated by as much as 3.2 percent to C$1.2546 per U.S. dollar, from C$1.2141 yesterday. It touched the lowest since June 14, 2005. It traded at C$1.2503 at 9:14 a.m. in Toronto. One Canadian dollar buys 79.98 U.S. cents.

`Melting Down'

``Equities and commodities are melting down and risk reduction has morphed into capitulation,'' said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. ``Currency movements are all about deleveraging within a toxic investment environment. These moves can only be described as spectacular, one way and unprecedented.''

The Bank of Canada yesterday cut the cost of borrowing by 25 basis points to 2.25 percent, and said further easing may be required. A basis point is 0.01 percentage point. Crude oil dropped to as low as $68.90 a barrel today.

``The U.S. dollar continues to reign supreme -- you just cannot fight the trend,'' said Steven Butler, director of foreign-exchange trading at Scotia Capital Inc. in Toronto. ``We have moved so far, so fast, everyone appears to be getting squeezed. It's very overdone, but too soon to call a top in this market.''

The U.S. dollar advanced today against all of the 16 most- actively traded currencies except the Japanese yen and the Australian dollar.

``The U.S. dollar is still well bid across the board,'' said Shane Enright, currency strategist at CIBC World Markets Inc. in Toronto. ``Funding problems continue to dissipate, with a lower Libor fix again, but the market needs a few days of market stability in both equities and funding it seems.''

The yield on the two-year government bond dropped 2 basis points to 2.14 percent. The price of the 2.75 percent security due in December 2010 advanced 4 cents to C$101.25.

The 10-year note's yield slipped 4 basis points to 3.66 percent. The price of the 4.25 percent security maturing in June 2018 climbed 30 cents to C$104.76.

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