The Canadian dollar fell a day after the Federal Reserve said the recovery of Canada’s biggest trade partner is “considerably slower” than anticipated. Canada’s currency, also known as the loonie, erased yesterday’s gain, which was the biggest in more than a year. Stocks worldwide declined today on renewed concern Europe’s sovereign-debt crisis is getting worse. A rally in Canadian government 10-year bonds pushed the yield to 2.31 percent, the lowest level since at least 1989. “People are racing for the hills,” said Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp. “People are obviously concerned about the growth prospects for Canada’s largest trading partner, and that doesn’t bode to well for the loonie.” The Canadian currency depreciated 1.78 percent to 99.49 cents per U.S. dollar at 5 p.m. in Toronto, from 97.72 cents yesterday, when it jumped 1.77 percent, the most since May 2010. One Canadian dollar buys $1.0051. The MSCI World (MXWO) Index of stocks in developed nations dropped 3 percent and the Standard & Poor’s 500 Index slid 4.4 percent on speculation the European debt crisis will spread to larger economies as the cost of insuring French debt rose to a record. The S&P/TSX Composite Index gained 0.7 percent. Futures on crude oil, Canada’s biggest export, increased 4.5 percent to $82.89 a barrel in New York after touching $83.14 earlier today. Rally in Bonds Government 10-year note yields dropped 12 basis points, or 0.12 percentage point, to 2.33 percent after touching the record low. The price of the 3.25 percent security due in June 2021 increased C$1.11 to C$108.05. Canada sold C$3 billion ($3 billion) of three-year debt, drawing an average yield of 0.965 percent. The government received bids of C$6.55 billion for the 2.25 percent securities maturing in August 2014, according to a statement today on the Bank of Canada’s website. The Canadian currency is heading for its third straight weekly loss after climbing on July 26 to 94.07 cents per U.S. dollar, the strongest level in more than three years, as the outlook for the global economy saps demand for risk assets. The Fed pledged yesterday for the first time to keep its benchmark interest rate at a record low at least through mid- 2013 to revive a recovery that’s “considerably slower” than anticipated. Fed’s Statement The Federal Open Market Committee is “prepared to employ” additional tools to bolster an economy hobbled by weak hiring and anemic household spending, it said in a statement. The U.S. central bank “left the impression that the near- term outlook for the U.S. economy has become exceptionally choppy,” said David Watt, senior currency strategist at Royal Bank of Canada’s RBC Capital Markets, by phone from Toronto. “They’re going to be on hold for the next two years. It’s not exactly the greatest vote of confidence in the potential for the U.S. economy to stage a sharp rebound.” Watt said that unlike the last time the Fed stepped in to buoy market sentiment last year, with the announcement of a second round of debt purchases under quantitative easing, the global economy is now weaker, meaning commodity prices may remain lower for longer as demand wanes. “This time, the global economy is in much dicier shape,” Watt said. “It’s unclear that the Fed alone is going to be enough to stage a risk-sentiment reversal like it was last year. If we want to see risk rebound, we’re probably going to need more sandbags, or more central banks indicating that they’re prepared to take action.” RBC predicted the loonie will appreciate to 95 cents per U.S. dollar by year-end. To contact the reporters on this story: Joe Ragazzo in New York at jragazzo@bloomberg.net; Chris Fournier in Halifax at cfournier3@bloomberg.net To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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