Canada’s Dollar Weakens as Commodities Including Oil Decline

By Chris Fournier

Jan. 19 (Bloomberg) -- Canada’s dollar depreciated against its U.S. counterpart as commodities such as crude oil, natural gas and gold fell and as investors remained jittery over a deteriorating global economy.

“I think the Canadian dollar is a little vulnerable,” said Steven Butler, director of foreign-exchange trading in Toronto at Scotia Capital, a unit of Canada’s third-largest bank. “It seems at the moment the only news is bad news.”

The Canadian currency weakened 0.5 percent to C$1.2503 per U.S. dollar at 8:18 a.m. in Toronto, from C$1.2431 on Jan. 16. One Canadian dollar buys 79.98 U.S. cents.

Canada’s dollar will strengthen to C$1.19 by the end of 2009, according to the median estimate of 33 economists surveyed by Bloomberg News. Scotia Capital also predicts the currency will rise to that level by the end of next year.

Crude oil futures, which have lost more than $100 a barrel since reaching a peak in July, fell $1.37, or 3.8 percent, to $35.25 a barrel. Natural gas for February delivery fell 2.3 percent to $4.69 per million British thermal units.

Gold for immediate delivery lost as much as $6.41, or 0.8 percent, to $836.74 an ounce.

“The loonie will still be reacting to overall confidence issues,” said Firas Askari, head currency trader in Toronto at BMO Nesbitt Burns, a unit of Bank of Montreal. The currency will move with commodities and global equity markets, he said.

The euro-area economy will contract this year for the first time since the currency was introduced a decade ago, the European Commission forecast. Royal Bank of Scotland Group Plc said it may post a loss of as much as 28 billion pounds ($41 billion), the biggest ever reported by a U.K. company. Spain had its AAA sovereign credit rating cut by Standard & Poor’s in the second downgrade of a euro-region government in five days.

Canadian Rates

The Bank of Canada will cut the target rate for overnight loans between commercial banks by a half-percentage point to 1 percent when it meets tomorrow, according to the median estimate of 20 economists in a Bloomberg News survey. The central bank reduced the benchmark by 0.75 percentage point to 1.5 percent at its last meeting on Dec. 9.

Financial markets in the U.S. are closed for the Martin Luther King Jr. holiday.

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