Canada’s dollar slid to the weakest level since January versus its American counterpart amid bets Europe’s debt crisis will worsen and concern economic growth is slowing in the U.S., the nation’s largest trade partner. The currency, nicknamed the loonie for the image of the bird on the C$1 coin, fell for a third day as risk appetite cooled after three banking officials said China’s biggest banks may fall short of loan targets amid a slowdown. Euro-area leaders clashed yesterday over how to stem the crisis that began in Greece. “The market is still very unsettled by what’s going on in Europe,� said Steve Butler, managing director in Toronto at Bank of Nova Scotia’s Scotia Capital unit. “The fundamentals in Canada are still OK, and are certainly less worse than a lot of other places. In spite of all of that, the U.S. dollar remains supreme given the flight-to-quality trade.� Canada’s currency depreciated 0.2 percent to C$1.0269 per U.S. dollar at 5 p.m. in Toronto, after gaining as much as 0.3 percent earlier. It touched C$1.0296, matching yesterday’s low, the weakest level since Jan. 9. One Canadian dollar buys 97.38 U.S. cents. The 14-day relative-strength index for the Canadian dollar versus the greenback fell to 28, suggesting the loonie is headed for a reversal of recent losses. A reading below 30 signals a currency is oversold and may be poised for a correction. Bonds Rise Government bonds rose, erasing earlier losses and pushing yields on benchmark 10-year notes down one basis point, or 0.01 percentage point, to 1.87 percent. Two-year note yields decreased one basis point to 1.14 percent. Canada will auction C$700 million ($681 million) of real- return bonds on May 30, according to a statement today on a central-bank website. The 1.5 percent inflation-linked securities mature in December 2044. The loonie weakened yesterday versus its U.S. counterpart on concern Europe’s crisis would worsen even after Canada’s retail sales rose more than forecast in March. They gained 0.4 percent to C$39.1 billion following a 0.2 percent drop the prior month. Economists surveyed by Bloomberg News forecast an increase of 0.3 percent. Other reports in May have suggested domestic demand will boost Canada’s economic growth, including gains in wholesale trade and the biggest two-month job gain in three decades. The Canadian currency was little changed over the past week against nine developed-nation peers monitored by Bloomberg Correlation-Weighted Indexes. The U.S. dollar strengthened 0.9 percent, and the yen gained 04 percent, on refuge demand amid the European crisis. The euro fell 0.6 percent. ‘On the Defensive’ “The bias has been for a generally weaker Canadian dollar, as the general backdrop isn’t very constructive for the Canadian dollar as there is no good option in Europe,� Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit in Toronto, said in a telephone interview. “We are seeing consolidation near these levels as the market is waiting for direction. Until then, the Canadian dollar will be on the defensive.� Canada’s currency has lost 4.5 percent against its U.S. counterpart since reaching a 2012 high of 98 cents on April 27. The greenback will probably pause in its advance against the loonie and may undergo a “modest correction,� according to a client note by Osborne and TD strategist Greg Moore citing technical analysis. The weakness will be an opportunity to buy the U.S. currency, which shows no signs of a longer-term change in the upward pattern that began last month, they wrote. China Slowdown The loonie fell today after three officials said China’s biggest banks may fall short of loan targets for the first time in at least seven years. A decline in lending in April and May means the banks’ total new loans for 2012 will probably be about 7 trillion yuan ($1.1 trillion), less than the government goal of 8 trillion yuan to 8.5 trillion yuan, said one of the officials, declining to be identified because the person isn’t authorized to speak publicly. The greenback rose against most of its major peers. The Standard & Poor’s 500 Index sank as much as 0.6 percent before erasing losses. Concern about an economic slowdown in China added to speculation on a worsening in Europe’s debt crisis. European leaders disagreed at a summit yesterday over joint debt sales as they called on Greece to stick with the budget cuts needed to stay in the euro and offered no immediate relief for recession- wracked Spain. Italian Prime Minister Mario Monti said today in an interview on Italian television La7 that a majority of leaders at the summit backed joint European bonds and that Greece won’t leave the euro. U.S. Economy The loonie was little changed earlier after Commerce Department data showed orders for American computers, machinery and other capital equipment dropped in April for a second month, pointing to a slowdown in U.S. business investment. U.S. manufacturing grew in May at the slowest pace in three months, according to an index based on a survey of purchasing managers, London-based Markit Economics said today. It fell to 53.9 from 56 in April, the report showed. A reading above 50 signals expansion. S&P’s GSCI Index of 24 raw materials rose as much as 1.1 percent before trimming the advance to 0.4 percent. Crude oil for July delivery increased 1 percent to $90.80 a barrel in New York. Raw materials account for about half of Canada’s export revenue, and crude is the nation’s biggest export. 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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