Canada's Dollar Poised for Biggest Weekly Decline Since 1971

By Chris Fournier

Oct. 3 (Bloomberg) -- Canada's currency is headed for the biggest weekly slump since at least 1971 as commodity prices plummet in the wake of the global financial crisis and investors scramble to buy U.S. dollars.

The Canadian currency has plunged 4.6 percent against its U.S. counterpart since Sept. 26, the biggest weekly loss since Bloomberg began keeping records of the currency in January 1971. Today it reached the weakest since August 2007.

``There's been a lot of selling of resource sectors, and the commodity currencies are taking it on the chin,'' said Jonathan Gencher, director of foreign-exchange sales at Bank of Montreal in Toronto. ``It looks more and more like the entire global economy is going to slow down.''

Canada's dollar fell as much as 0.5 percent to C$1.0843 per U.S. dollar, the weakest since Aug. 16, 2007, from C$1.0791 yesterday and C$1.0336 a week ago. It last traded at C$1.0838 at 9:22 a.m. in Toronto. One Canadian dollar buys 92.27 U.S. cents.

Crude oil for November delivery was poised for the biggest weekly drop since 2004. The contract has declined from its record of $147.27 per barrel on July 11. Oil fell 2.5 percent today to $91.70. The currency has weakened 6.8 percent since then. Canada relies on commodities for about half of its export revenue. The U.S. is Canada's largest trading partner.

``This is all a function of the credit crisis,'' said Gencher, who predicts the Canadian dollar will trade at C$1.0750 to C$1.0830 by year-end. ``Funding the balance sheets is getting tougher and tougher. Everyone needs U.S. dollars. That's why the U.S. dollar is better bid.''

Canadian Dollar Weakened

After surging 17 percent in 2007 as commodity prices soared, the Canadian dollar weakened 7.8 percent so far this year as the U.S. economy cooled and oil prices fell. Crude accounts for 21 percent of the weighting in the Bank of Canada Commodity Price Index, the largest single component.

``The support from commodities is definitely gone and will continue to hinder the Canadian dollar,'' said Steven Barrow, a currency strategist at Standard Bank Plc in London. The currency will slip against the U.S. dollar, ``but it won't slip as much as many other currencies.'' Barrow forecasts the Canadian dollar will fall to C$1.20 against the U.S. currency in 12 months.

Canada's currency, dubbed the loonie because of the aquatic bird on the one-dollar coin, will slip to C$1.13 against the U.S. dollar by the end of 2009, according to the median forecast in a Bloomberg News survey of economists.

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