Canada’s dollar fell against its U.S. counterpart for the first time since August as the Bank of Canada signaled interest-rate increases are on hold as the nation’s economic recovery may be weaker-than-expected. The loonie, as the currency is nicknamed, fell this week by the most since July, breaking the longest winning streak since November 2007. China’s central bank unexpectedly raised interest rates Oct. 19, damping demand for assets related to economic growth. Canada’s currency weakened against 13 of its 16 most- traded counterparts as investors watched for policy changes from the Group of 20 finance ministers meeting South Korea. “Risk has come off some as the Bank of Canada signaled a greater economic slowdown than expected and China surprisingly raising its rates,” said John Curran, a senior vice president at CanadianForex Ltd., an online foreign-exchange dealer, said by phone from Toronto. “Heading into next week, attention will be paid to the G-20 meeting and anything that may alter the perception of quantitative easing in the U.S, and the dollar is driving all markets.” The Canadian dollar fell 1.5 percent to C$1.0259 per U.S. dollar from C$1.0104 on Oct. 15. One Canadian dollar buys 97.48 U.S. cents. Carney Stance Bank of Canada Governor Mark Carney on Oct. 19 kept the target rate for overnight loans between commercial banks at 1 percent, and cut his forecast for growth next year to 2.3 percent from a prior estimate of 2.9 percent. “At this time of transition in the global recovery, with a weaker U.S. outlook, constraints beginning to moderate growth in emerging-market economies, and domestic considerations that are expected to slow consumption and housing activity in Canada, any further reduction in monetary policy stimulus would need to be carefully considered,” the bank said in a statement. The central bank may not raise rates again for six months, overnight index swaps indicate. The rate on the six-month security, a gauge of what investors expect the policy rate will average during that time, slumped to 1.05 percent yesterday, down from 1.14 percent Sept. 9, the day after the BOC raised its overnight policy rate to 1 percent from 0.75 percent. “The Bank of Canada is going to keep a soft-money policy into the end of the year,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “The market is focused on geopolitical risk out of the G-20 from here. Currency traders will be headline hunting.” Flaherty Backs Geithner Canadian Finance Minister Jim Flaherty said he is siding with U.S. Treasury Secretary Timothy F. Geithner and his proposal to have G-20 nations commit to policies that reduce external imbalances below a specific share of gross domestic product. “I think it’s useful,” Flaherty said in a Bloomberg Television interview in Gyeongju, where he is meeting with his G-20 counterparts after weeks of wrangling about whether nations are relying on weaker exchange rates to spur growth. “It gets us directionally where we want to go which is to create an action plan for our leaders that they can adopt” when they meet again in Seoul next month. Finance chiefs and central bankers will say after G-20 talks conclude today that they want a “more market-determined exchange rate system that minimizes adverse effects of excess volatility and disorderly movements in exchange rates,” an official from a G-20 member country said, citing a draft statement and speaking on condition of anonymity. They will refrain from “competitive undervaluation” of currencies, the official said. China Impact “When the weekend passes, the market will get a clearer picture of that the future holds for the loonie,” said Maria Jones, a currency trader in Toronto at Toronto-Dominion Bank’s TD Securities unit. China’s incraese in interest rates will have “a negative effect” on Canada’s dollar, Michael Leavitt, Montreal-based institutional-derivatives broker at MF Global Canada Co., wrote via e-mail, “as China puts the brakes on, slowing growth.” The one-year deposit rate will increase to 2.5 percent from 2.25 percent, the People’s Bank of China said on its website today. The lending rate will increase to 5.56 percent from 5.31 percent, it said. The loonie has gained 0.3 percent against the dollar this month while gaining 2.6 percent this year. To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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