Canada's Dollar Falls on U.S. Economy Outlook, Commodity Demand

Canada's currency fell the most in a month on concern that a U.S. recession will reduce demand for Canadian commodity exports.

Traders sold currencies of commodity-exporting countries as the U.S. economy falters and data from Europe suggested the international economy may face a slowdown.

``A fear of a possible U.S. recession is taking its toll on commodity currencies,'' said Andrew Chaveriat, a technical foreign-exchange strategist at BNP Paribas Securities SA in New York. ``The U.S. dollar is going to continue this rally as people avoid risky bets, and we may see some weakness in the Canadian dollar.''

Canada's currency, known as the loonie after the image of the bird on its one-dollar coin, fell 1.3 percent, the most since Jan. 4, to C$1.0068 per U.S. dollar at 4:30 p.m. in Toronto. One Canadian dollar buys 99.33 U.S. cents.

Prices of the nation's commodity exports also declined. Crude oil for March delivery fell $1.61, or 2 percent, to $88.41 a barrel. Gold for immediate delivery dropped $14.20, or 1.6 percent, to $895.20 an ounce. Commodities account for about half of Canada's exports.

The currency is lower today against 12 of the 16 major currencies, led by the Brazilian real and the Taiwanese dollar. It extended its losses after a report from the U.S. showed service industries unexpectedly shrank in January at the fastest pace since the last recession, as the housing slump deepened and consumer spending cooled. The U.S. consumes about 80 percent of Canada's exports.

Damage Assessment

``The Canadian dollar may be an underperformer for the short run,'' said Steve Butler, a director of foreign exchange trading at Scotia Capital Inc. in Toronto. ``The market is trying to figure out how much damage the U.S. recession is going to have on the Canadian economy.''

Canadian bonds rose and yields fell as declining equity prices worldwide encouraged investors to buy safe-haven government securities. The yield on the two-year Canadian bond is close to its lowest since 2005.

Earlier, reports from the euro zone showed service industries grew at the slowest pace in more than four years and retail sales dropped the most since 1995.

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