Canada’s currency posted its worst performance in four weeks after renewed risk aversion drove investors to take refuge in the U.S. dollar and the yen. The loonie, as Canada’s dollar is known, dropped 1.2 percent in the past five sessions after the financial recovery plan presented by U.S. Treasury Secretary Timothy Geithner failed to ease concern the global crisis will worsen. Crude oil, source of a tenth of Canada’s export revenue, fell below $35 a barrel. “Commodities in general are coming under pressure from weakening risk sentiment,” said Manik Narain, currency strategist at Standard Chartered Bank in London. “The failure of the U.S. Treasury plan this week to stabilize market expectations has had a negative impact on commodities. That was likely a factor in the performance this week in the Canadian dollar.” The Canadian dollar dropped to C$1.2345 per U.S. dollar at 4:28 p.m. in Toronto, from C$1.2193 on Feb. 6. The currency fell 4.7 percent in the week ended Jan. 16 and gained in the three weeks since then. One Canadian dollar buys 81 U.S. cents. The U.S. dollar outperformed all but the Swiss franc among the 16 most actively traded currencies this week. Group of Seven finance ministers and central bankers meeting in Rome today said in a draft statement that “excess volatility and disorderly movements” in exchange rates should be avoided. ‘Dominant Risk’ Geithner outlined a plan earlier this week to help remove illiquid assets clogging banks’ balance sheets and restart lending. The U.S. Congress is set to give final approval today on its economic stimulus package, in which the administration of President Barack Obama wants banks to help more than 2 million borrowers in danger of defaulting on their mortgages. “There’s still a lot of risk aversion out there and I think it’s large enough to be the dominant theme in the coming months,” said Dustin Reid, director of currency strategy at RBS Greenwich Capital Markets in Chicago. “Literally day to day the risk appetite versus risk aversion theme is going to swing back and forth.” Canada’s dollar dropped a record 18 percent last year as the worst financial crisis in two generations decimated demand for commodities, which account for about half the nation’s export revenue. Canada unexpectedly recorded its first monthly trade deficit in more than three decades this week on a slump in sales of such raw materials as crude oil, alumina, and fertilizer. The Dow Jones Industrial Average decline 5.2 percent this week. Movements in the Canadian dollar track the Dow with a correlation of 0.77, according to Maria Jones, currency trader at TD Securities Canada Inc. in Toronto. That’s more than other indicators including crude oil and the spread between yields on two-year bonds in Canada and the U.S. Equity Correlation “The correlation between the commodity currencies and equity markets has been pretty strong lately,” said Jones. “It’s a very high number.” A correlation of 1 would mean the currency marched in lock-step with the index. Canada’s currency will depreciate to C$1.26 against the U.S. dollar by the end of March before rebounding to C$1.20 by year- end, according to the median forecast in a Bloomberg News survey of 44 economists. The yield on the two-year government bond rose seven basis points, or 0.07 percentage points, to 1.21 percent this week. The price of the 2.75 percent security due in December 2010 fell 16 cents to C$102.71. The yield advantage of two-year Canadian government bonds compared with the similar-maturity U.S. Treasury note was 25 basis points, down from 51 basis points on Jan. 27, the most this year.

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