Canada’s currency weakened to the lowest in more than a week as stocks and crude oil fell, the U.S. dollar rose and the Bank of Canada prepared to make a decision on interest rates and issue a paper on monetary policy. “The price of oil is down and the U.S. dollar is up, so you see the Canadian dollar reacting to that,” said Yanick Desnoyers, assistant chief economist in Montreal at National Bank Financial Inc., a unit of the nation’s sixth-biggest bank. “Plus there’s the issue of what the Bank of Canada’s going to do.” The Canadian currency, known as the loonie, dropped for a third day, declining as much as 2.1 percent to C$1.2382 per U.S. dollar, the weakest level since April 9, before trading at C$1.2358 at 10:31 a.m. in Toronto. It closed at C$1.2132 on April 17. One Canadian dollar buys 80.92 U.S. cents. The Standard & Poor’s 500 Index retreated 2.8 percent on speculation it has moved too high too quickly. The equities gauge wrapped up its steepest six-week gain since 1938 on April 17. Crude for May delivery tumbled 7.9 percent today to $46.34 a barrel. The Canadian dollar tends to track swings in stocks and commodity prices. “The U.S. dollar is stronger across the board as equities once again dominate price action in foreign exchange,” Adam Cole, London-based global head of currency strategy at RBC Capital Markets Inc., wrote in a note to clients today. “It’s a critical week for the Canadian dollar, with the Bank of Canada announcement and monetary policy report.” The central bank will leave its interest rate unchanged at a record low of 0.5 percent when policy makers meet tomorrow, according to the median forecast of 25 economists surveyed by Bloomberg. It cut the benchmark rate last month from 1 percent. Magnitude’s the Question Mark Carney, the bank’s governor, is due to announce guidelines on April 23 about quantitative easing, a policy in which a central bank buys government debt to try to revive economic growth. Policy makers in the U.S., the U.K., Switzerland and Japan have already unveiled such measures. Among the world’s 16 most-traded currencies, the greenback, pound, franc and yen, along with the loonie and the Singapore dollar, performed worst in March. “I’m pretty sure the Canadian central bank will follow other central banks around the world,” said National Bank’s Desnoyers. “The question is the magnitude. Maybe we don’t need quantitative easing that’s as aggressive.” Carney may adopt quantitative and credit easing policies by July, injecting between C$10 billion ($8.2 billion) and C$50 billion into the economy, according to a survey of 27 economists taken from April 8 to April 16. The measures will last about a year, the Bloomberg survey showed. Bond Sale Canadian bonds have lost investors 1.3 percent this month, according to Merrill Lynch & Co. indexes, as stock markets rallied and debt supply swelled. The yield on the two-year note fell three basis points today, or 0.03 percentage point, to 1.12 percent. The price of the 1.25 percent security due in June 2011 added 6 cents to C$100.26. Quebec plans to sell 1.5 billion euros ($2 billion) of 10- year bonds, priced to yield about 160 basis points more than the mid-swap rate, according to a Societe Generale banker involved in the transaction. The loonie lost a record 18 percent last year as demand for commodities, which account for more than 50 percent of the nation’s export revenue, plummeted amid a global economic slowdown. The currency is down 1.5 percent this year. Canada’s dollar will weaken to C$1.26 against the U.S. dollar this quarter before rebounding to C$1.16 by the end of 2010, according to the median forecast in a Bloomberg survey of 36 analysts and economists.

Source