By Chris Fournier Nov. 21 (Bloomberg) -- Canada’s currency posted its second straight weekly decline as the global economic slowdown pushed oil below $50 per barrel and stocks tumbled. The Canadian currency depreciated 3.1 percent since Nov. 14 and traded near a four-year low as the Bank of Canada Commodity Price Index slumped to the weakest in more than two years. Raw materials account for about a third of Canada’s export revenue. “The Canadian dollar is back into a downward trend,” said Martin Lefebvre, a senior economist at Montreal’s Desjardins Group, Quebec’s largest credit union. “There’s no support from either commodities or short-term interest rates.” The Canadian dollar rose as much as 1.7 percent today to C$1.2746 per U.S. dollar, from C$1.2962 yesterday when it declined 3.2 percent. It traded at C$1.2772 at 4 p.m. in Toronto. One Canadian dollar buys 78.31 U.S. cents. Lefebvre predicts the currency will weaken to C$1.33 in the first quarter of 2009. Canada’s currency earlier dropped to C$1.2984, the weakest since Oct. 28, when it reached C$1.3017, the lowest since September 2004. ‘Weaker Global Growth’ “We remain bearish on the Canadian dollar,” Sophia Drossos, an analyst at Morgan Stanley in New York, wrote in a note to clients. “The combination of weaker global growth and lower commodity prices suggests the Canadian dollar may be due for a catch-up to some of the weakness seen in other commodity- linked economies.” Canada’s dollar is headed for its sixth straight monthly drop, the longest losing streak in 15 years. Crude oil, which accounts for a tenth of Canada’s export revenue, has dropped 66 percent from a record $147.27 a barrel on July 11. It closed at $49.88. “The commodity-based currencies are really under a lot of pressure,” said Richard Briggs, a Montreal-based vice president at MF Global Canada & Co., a unit of MF Global Ltd., the world’s largest broker of exchange-traded futures and options. “The pressure on the Canadian dollar will continue. Today’s move is just a reprieve.” Briggs predicts the currency will weaken further by year-end as commodity prices sink and investors sell riskier assets. Consumer prices increased 2.6 percent from October 2007 after a 3.4 percent annual increase through September, Statistics Canada reported today in Ottawa. Annual inflation was slower than the 3.1 percent median forecast of 20 analysts surveyed by Bloomberg News. ‘Inflation Melt’ “Today’s report showed that Canada is also seeing inflation melt in real time,” Doug Porter, a senior economist for BMO Capital Markets in Toronto, wrote in a note to clients. “Inflation is poised to plunge again in November. This report gives the all-clear signal to the Bank of Canada to continue cutting rates.” The central bank cut borrowing costs six times in the past 12 months, lowering its overnight rate to 2.25 percent from 4.5 percent to spur the economy. Policy makers will reduce interest rates by another 50 basis points when they meet on Dec. 9, according to Morgan Stanley’s Drossos. “As downside risks are magnified, we expect the Bank of Canada to take out additional ‘insurance rate cuts,’” she wrote. Bank of Canada Governor Mark Carney this week said risks to growth and inflation “appear to have shifted to the downside.” The yield on the two-year government bond rose two basis points, or 0.02 percentage point, to 1.81 percent today. The price of the 2.75 percent security due in December 2010 fell 5 cents to C$101.86. The 10-year note’s yield rose 12 basis points to 3.49 percent. The price of the 4.25 percent security maturing in June 2018 declined C$1.01 to C$106.18. The 10-year bond yielded 168 basis points more than the two- year security, up from 158 basis points yesterday. The so-called yield curve reached 184 basis points on Nov. 6, the steepest since May 2004. To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

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