Canada’s dollar fell for a fourth straight week against most of its major peers as gross domestic product unexpectedly contracted in February and the economy of its largest trading partner grew slower than forecast. The Canadian currency climbed against its U.S. counterpart for a second week, reaching a more-than-three-year high, amid speculation the Federal Reserve will trail the Bank of Canada in raising interest rates. It weakened against the Australian dollar, another currency linked to commodities, based on the Canadian dollar’s ties to the U.S. economy. Canada’s economy may have added 20,000 jobs in April, according to the median forecast in a Bloomberg News survey before the May 6 report. “The Canadian dollar continues to lag the other major currencies,” said Blake Jespersen, director of foreign exchange in Toronto at Bank of Montreal. “The main driver was just overall U.S. dollar weakness across the board.” The loonie, as the Canadian currency is known for the image of the aquatic bird on the C$1 coin, appreciated 1 percent to 94.51 cents versus the greenback from 95.45 cents on April 22. It touched 94.46 cents yesterday, the strongest level since Nov. 12, 2007. One Canadian dollar buys $1.0581. Market Measures Canada’s currency weakened against 10 of its 16 most-traded counterparts this week. It fell 0.5 percent this week and 1.6 percent in April, according to Bloomberg Correlation-Weighted Currency Indexes, a measure of the 10 developed-nation currencies. The U.S. currency has lost 1.5 percent and 4.9 percent, respectively. The Australian dollar gained 1.2 percent against the loonie to 1.0368 from 1.0247 on April 22. “The Aussie dollar, for instance, has drastically outperformed the Canadian because it’s tied more to China whose growth continues at a rapid pace,” Jespersen said in a telephone interview. “We’re tied to a slower economy and therefore our currency is lagging.” China’s manufacturing sustained its expansion this month even as the government raised interest rates and let the yuan strengthen at a faster pace, a purchasing managers’ index showed. Output in Canada’s economy fell 0.2 percent to a seasonally adjusted annual rate of C$1.26 trillion ($1.32 trillion) in February, Statistics Canada said. The result was weaker than estimates of all 22 economists in a Bloomberg News survey, which had a median forecast of no change. Economy Slows The economy grew 2.9 percent in February from the same month a year earlier, the slowest annual pace of expansion in a year, according to Statistics Canada. The BOC has held its target rate for overnight loans between commercial banks at 1 percent since September, when the rate increased for a third time last year. The central bank will keep its benchmark at that level during the second quarter and boost it to 1.50 percent during the third quarter, according to the median forecast in a Bloomberg News survey. The yield on June 2011 bankers’ acceptances, a barometer of short-term rate expectations, fell to 1.34 percent yesterday from 1.36 percent April 28, indicating investors may have tempered their anticipation for higher Canadian policy rates. Canadian government bonds advanced, with the yield on the benchmark 10-year security down eight basis points, or 0.08 percentage point, to 3.20 percent from 3.29 percent April 22. The price of the 3.5 percent security maturing in June 2020 increased 66 cents to C$102.33. Benchmark Rates Fed Chairman Ben S. Bernanke left its benchmark interest rate in a range of zero to 0.25 percent on April 27, where it’s been since December 2008, and retained a pledge in place since March 2009 to keep it “exceptionally low” for an “extended period.” The likelihood policy makers will raise the target rate at their March 2012 meeting decreased to 44 percent, from 61 percent a month ago, Fed funds futures showed. “The dollar continues to be a sell into the Fed, past the Fed, and much of that is driven by Bernanke’s dovish comments,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. The Fed is holding down interest rates to spur the economy because unemployment “is doing serious damage to the long-term productive capacity of our economy,” said Aaron Gurwitz, chief investor officer in New York at Barclays Plc’s Barclays Wealth, which oversees $251 billion. Inflation Threat “That’s an immediate threat that is happening as opposed to inflation, which is a potential threat,” Gurwitz said in a telephone interview.” The U.S. economy grew at a 1.8 percent rate in the first quarter, down from 3.1 percent in the fourth quarter, as consumer purchases cooled, home construction fell and government spending declined. Initial claims for U.S. unemployment insurance unexpectedly rose last week, adding to concern the economic recovery is slowing. Crude oil futures rose 1.5 percent this week to $113.93 a barrel in New York. Raw materials, including oil, account for about half of Canada’s export revenue. “It’s clear that there are two things driving the loonie higher, which are commodity prices and weakness in the U.S. dollar,” said Kathy Lien, director of currency research at the online currency trader GFT Forex in New York. “Oil appears to be ending quite firmly this week.” To contact the reporter for this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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