Canada’s dollar weakened the most this month as evidence of a slowing U.S. economic recovery diminished the attractiveness of currencies of countries that depend on commodities for the majority of growth. Canada’s dollar headed for a loss of 1.8 percent this week versus its U.S. counterpart after gaining 2.7 percent in the previous five days. Bank of Canada policy makers are forecast by analysts to raise interest rates for a second time in two months on July 20, while its largest trading partner is expected to keep borrowing costs at a record low this year as growth wanes. “One of the market’s favorite trades was short euro, long commodity currencies,” Steve Butler, director of foreign- exchange trading in Toronto at Bank of Nova Scotia’s Scotia Capital unit, said in an e-mail. “With the change in sentiment from euro-zone sovereign woes to U.S. deflation concerns, there has been massive short covering going through this week.” A short is a bet that a currency will fall. The currency, nicknamed the loonie after the image of the aquatic bird on the C$1 coin, slid as much as 1.7 percent, the most since June 29, and traded at C$1.0541 per U.S. dollar at 10:38 a.m. in Toronto, from C$1.0383 yesterday. One Canadian dollar buys 94.86 U.S. cents. Confidence among U.S. consumers slumped in July to the lowest level in a year, signaling the biggest part of the economy is losing momentum. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment fell to 66.5 in July from 76 a month earlier. The gauge was projected to fall to 74, according to the median forecast in a Bloomberg News survey of 62 economists. Leading Indicators Canada’s index of leading economic indicators advanced for a 13th straight month in June, on growth in manufacturing and the money supply. The index rose 1 percent in June, and Ottawa- based Statistics Canada today also increased the estimated gains for the previous two months to 1.1 percent from 0.9 percent. Economists surveyed by Bloomberg News said the index would rise 0.7 percent, based on the median of 11 estimates. The loonie weakened against all of its 16 most-traded counterparts this week, including the euro and pound, as reports indicating a slowdown in American manufacturing underscored the Federal Reserve’s lowered forecasts for economic growth and inflation. Crude oil for August delivery fell as much as 0.9 percent today to $75.93 a barrel in New York, the third straight drop. Oil is Canada’s largest export. To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

Source