Canada's Currency Weakens

Canada's dollar declined the most in more than a week as its U.S. counterpart rose versus major currencies and prices of the nation's commodity exports fell.

The Canadian dollar weakened for the first time in three days as traders speculated the U.S. Federal Reserve will raise borrowing costs this year to fight inflation. The Bank of Canada unexpectedly left its key rate unchanged at 3 percent this week.

Canada's dollar declined 0.6 percent to C$1.0259 per U.S. dollar at 8:45 a.m. in Toronto, from C$1.0199 yesterday. It was the biggest fall since June 4.

The Canadian currency has traded near parity with its U.S. counterpart this year. It touched a 2008 low of C$1.0379 on Jan. 22, and a high of 97.12 cents per U.S. dollar on Feb. 28.

The currency depreciated 2.7 percent this year as slower growth in the U.S., Canada's biggest trading partner, reduced demand for the nation's manufactured goods such as cars and auto parts. Gross domestic product unexpectedly contracted at a 0.3 percent annualized rate in the first quarter, the first drop in almost five years, according to the government.

The Bank of Canada before its June 10 meeting had cut interest rates at every meeting since December to shore up an economy battered by a high currency and weak U.S. demand for exports. The bank has followed the U.S. and U.K., halting its easing cycle to ensure inflation remains contained.

Crude oil for July delivery fell as much as $3.78, or 2.8 percent, to $132.60 a barrel in electronic trading on the New York Mercantile Exchange. Gold for immediate delivery declined $18.50, or 2.1 percent, to $861.20 an ounce.

Canada, Bloomberg
6/12/2008 6:37:21 AM