Canada's Dollar Falls to Lowest in 3 Weeks as Stocks, Oil Sink

By Chris Fournier

Nov. 20 (Bloomberg) -- Canada's currency fell to the lowest in more than three weeks as pessimism over the outlook for the global economy drove oil below $50 a barrel and stocks tumbled.

The Canadian dollar has lost 17 percent this quarter as investors flee to the U.S. dollar for safety. All of the most- actively traded currencies except Japan's yen have dropped against the greenback since Sept. 30. Crude oil accounts for 21 percent of the Bank of Canada's Commodity Price Index.

``Commodities and stocks are both considered risky assets, and risk is the last thing the market wants right now,'' said Jacqui Douglas, currency strategist at TD Securities Inc. in Toronto. ``There's a substantial risk of overshooting up to C$1.30 to C$1.35 on waves of risk aversion.''

The loonie, as Canada's currency is known for the aquatic bird on the one-dollar coin, weakened as much as 3.1 percent to C$1.2948 per U.S. dollar, from C$1.2547 yesterday. It traded at C$1.2935 at 4 p.m. in Toronto. The currency reached C$1.3017 on Oct. 28. One Canadian dollar buys 77.33 U.S. cents.

Crude oil for December delivery declined as much as $4.98 to $48.64 a barrel on the New York Mercantile Exchange. The contract last fell below $50 on Jan. 18, 2007.

``Chances of hitting $40 are a lot greater than going back to $60,'' said Martin Lefebvre, a senior economist at Montreal's Desjardins Group, Quebec's largest credit union. ``The slowdown is only starting to unfurl on the rest of the planet. That won't call for strong commodity demand.''

The MSCI World Index of stocks in 23 developed nations declined as much as 5.9 percent to 772.96, the lowest in almost six years.

`Fear Remains the Religion'

``Faith is lacking and fear remains the religion,'' Andrew Busch, a Chicago-based currency strategist at BMO Capital Markets, wrote in a report. The unit of Bank of Montreal, Canada's fourth-largest bank, has a C$1.25 year-end forecast for the Canadian dollar.

Canada's currency is headed for a sixth consecutive monthly drop, the longest losing streak since the seven straight losses ended September 1993. Commodities account for about a third of the country's export revenue.

First-time claims for U.S. unemployment insurance unexpectedly rose last week to the highest level since 1992.

Bank of Montreal and Canadian Imperial Bank of Commerce probably will lead the biggest quarterly profit decline for Canadian banks since 2002 because of lower capital-markets fees and higher provisions for bad loans, forcing some to freeze dividends, said TD Newcrest Inc. analyst Jason Bilodeau.

First Budget Deficit

Canada's parliamentary budget office said the nation is on course to post its first budget deficit in more than a decade next fiscal year as revenue slows.

Canadian Prime Minister Stephen Harper told lawmakers in Ottawa that Canada will take whatever financial, fiscal and monetary measures are needed to help the world's eighth-biggest economy.

The 10-year note's yield dropped 14 basis points, or 0.14 percentage point, to 3.38 percent. The price of the 4.25 percent security maturing in June 2018 climbed C$1.15 to C$107.10.

The yield on the two-year government bond fell 12 basis points to 1.80 percent, the lowest since at least 1989 when Bloomberg records begin. The price of the 2.75 percent security due in December 2010 rose 23 cents to C$101.88.

``The deflation scare is more likely to result in 10-year yields dropping some more, resulting in a curve flattener,'' said Lefebvre.

The 10-year bond yielded 158 basis points more than the two- year security, down from 184 basis points on Nov. 6, when the so- called yield curve was the steepest since May 2004.

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