Canada’s dollar fell for a second day versus its U.S. counterpart as investors sought a refuge from Europe’s sovereign debt crisis in the wake of U.S. payroll data last week that trailed even the most bearish forecast. The Canadian currency weakened as much as 0.7 percent against the greenback. It still outperformed 10 of its 16 most- traded counterparts and reached the strongest level against the euro since March 14 after Italian bond yields climbed as European leaders met on the debt crisis. “Generally we’ve had a risk-off environment, largely on the back of what we saw Friday with non-farm payrolls, China numbers weren’t as good as expected and then of course we have European peripheral stresses and now with Italy under scrutiny so that’s keeping the markets under pressure,” Mary Nicola, a foreign-exchange strategist at BNP Paribas, said by phone from New York. “In spite of that the Canadian dollar has held up relatively well.” The Canadian currency weakened 0.6 percent to 96.88 cents per U.S. dollar at 5 p.m. in Toronto, compared with 96.27 cents on July 8. It rose as much as 1.5 percent to C$1.3547 per euro, from C$1.3745. One Canadian dollar buys $1.0324. Canada’s currency is likely to outperform its commodity- linked peers including the Australian and New Zealand dollars and the Mexican peso if risk aversion intensifies according to Citigroup Inc. Long positions for those currencies are greater than for the loonie, meaning traders would have to sell them more aggressively should higher-yielding assets move further out of favor, Citigroup said in a client note today. Long positions are bets that currencies will rise. Long Canada Trade The lack of spare capacity in the Canadian economy, the resilience of its labor markets and consumer prices that are running above expectations may force the Bank of Canada to raise interest rates sooner rather than later, boosting the nation’s currency, Citigroup strategists Andrew Cox in New York and Todd Elmer in Singapore wrote in the note. Cox and Elmer entered a tactical short-euro, long-Canadian- dollar trade on June 30 at C$1.3850 and tightened their stop- loss today to the entry level, meaning they are increasing bets the loonie will gain versus the euro. A short position is a bet that a security will fall in value. A stop-loss is an automatic order to exit a trade, should it move too far the wrong way. Bonds Rise Canada’s government bonds climbed, pushing the yield on benchmark two-year securities down eight basis points, or 0.08 percentage point, to 1.42 percent. The price of the 2 percent security maturing in August 2013 gained 15 cents to C$101.16. The loonie, as the nation’s currency is also known for the image of the common loon on the dollar coin, rose to as high as 94.46 cents versus the greenback on April 29, the strongest in more than three years before successive indications of softening U.S. economic growth drove it to as low as 99.13 cents on June 27. Canada ships about three quarters of its exports to the U.S. “If people are getting really nervous about the U.S. again, then you would expect the U.S. dollar to rally a little bit versus the Canadian dollar,” said Tom Levinson, a foreign- exchange strategist at ING Bank NV, by phone from London. “Such was the negative response to the payrolls number that it broadened out general risk aversion.” The loonie weakened against the greenback on July 8 as data showed U.S. employers hired 18,000 workers in June, the fewest in nine months, while the unemployment rate unexpectedly climbed, boosting concern that the U.S. economy is struggling. ‘Better Prospects’ “With Canada, they’re kind of brushing off this labor report in the U.S., whereas everywhere else seems to have reacted pretty negatively to it,” Levinson said. “We still take the view that U.S. data will steadily improve throughout the rest of this year and that will contribute to better prospects for Canada as well.” Canadian housing starts were 197,400 at a seasonally adjusted annual pace in June, Canada Mortgage & Housing Corp. said on its website today. Economists forecast a reading of 185,000 according to the median of 18 responses to a Bloomberg News survey. Chinese consumer prices increased 6.4 percent in June from a year earlier, the National Bureau of Statistics said on July 9, exceeding the 6.2 percent median estimate of economists surveyed by Bloomberg. The government will say on July 13 that gross domestic product expanded 9.3 percent in the second quarter from a year before, according to a separate survey, down from 9.7 percent the previous quarter. To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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