June 29 (Bloomberg) -- Canada’s dollar weakened, heading for a monthly drop, as investors trimmed bets in commodities before reports this week forecast to show the nation’s economy shrank and U.S. unemployment rose at a slower pace. “People are questioning whether we have much upside left,” said Sacha Tihanyi, a currency strategist in Toronto at Scotia Capital, a unit of Canada’s third-largest bank. “Hedge funds are paring bets in the commodity space. We see dollar- Canada reflecting that.” The Canadian currency depreciated 0.3 percent to C$1.1562 per U.S. dollar at 4:49 p.m. in Toronto, from C$1.1524 on June 26. The loonie, as the currency is known, is down 5.6 percent since May 29, when it closed at C$1.0915. One Canadian dollar buys 86.49 U.S. cents. “We have seen some buying of the dollar versus the Canadian dollar,” said Brian Kim, a foreign-exchange strategist at UBS AG in Stamford, Connecticut, the world’s second-biggest currency trader. “Some of the asset managers have been in buying; it looks like some equity-related purchases.” U.S. dollar purchases against the loonie may be related to quarterly or monthly portfolio rebalancing, said David Watt, senior currency strategist in Toronto at RBC Capital, a unit of Canada’s biggest bank. “Valuations do not seem to suggest this trend will continue,” Watt said. “So should U.S. dollar buying stop,” the greenback “could dip quickly” against the loonie. Stocks rose, with the Standard & Poor’s 500 Index advancing 0.9 percent. ‘Buy Canada’ Crude oil for August delivery rose 3.5 percent to $71.61 a barrel on the New York Mercantile Exchange. Canada relies on raw materials for more than half its export revenue, and crude is the country’s largest export. With crude oil higher, “I like ‘buy Canada,’” said Firas Askari, head currency trader in Toronto at BMO Capital Markets, a unit of Canada’s fourth-largest lender. “It’s worth another 100 basis points’ retracement. I’m buying the Canadian dollar anywhere near C$1.16” against the U.S. dollar. Among the 16 most-active currencies tracked by Bloomberg, Canada’s dollar is the worst performer this month against the U.S. dollar, underperforming its commodity-linked peers. The dollars of Australia and New Zealand climbed 0.9 percent and 1.6 percent, respectively, in June. Commodities, heading for the first quarterly advance in a year, may struggle to repeat their gains in the next three months as supply expands and speculators sell. Nickel may average 29 percent less in the third quarter than now, crude oil 16 percent, copper 14 percent and gasoline 10 percent, analyst estimates compiled by Bloomberg show. Employment Data Hedge funds and speculators cut their bets on higher prices by 23 percent in the two weeks ended June 23, the first back-to- back drop since March, according to an index using U.S. Commodity Futures Trading Commission data. The Canadian economy, the world’s eighth-largest, contracted 0.1 percent in April, according to the median forecast of 21 economists surveyed by Bloomberg News, after a 0.3 percent decline the previous month. Statistics Canada is due to release the report tomorrow in Ottawa. The U.S. jobless rate rose 0.2 percentage point to 9.6 percent this month, the highest level in 26 years, according to the median of 72 estimates in a Bloomberg survey. The gain would be the smallest since November. Nonfarm payrolls fell by 359,000 jobs in June, compared with a 345,000 drop the previous month, according to another Bloomberg survey. The Labor Department is due to release the reports on July 2. ‘Getting Confirmation’ “People will be ranging until we see non-farms on Thursday,” said Scotia’s Tihanyi. “There’s going to be a look from the market to see follow-through on that and getting confirmation on the improving fundamentals.” Canada’s government bonds lost investors 1.9 percent this year, according to a Merrill Lynch & Co. index. The 10-year note’s yield dropped one basis point today, or 0.01 percentage point, to 3.39 percent. The price of the 3.75 percent security maturing in June 2019 rose 10 cents to C$102.99. The loonie, which posted the biggest monthly gain in May since 1950, still is headed for a quarterly gain of 9 percent. The currency will strengthen to C$1.13 by the year-end, according to the median forecast of 37 economists and analysts surveyed by Bloomberg News. Canadian financial markets will be closed on July 1 and markets in the U.S. will be closed on July 3 for holidays.

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