Canada’s Dollar Falls as U.S. Greenback Gains on Risk Aversion

By Chris Fournier

Jan. 23 (Bloomberg) -- Canada’s dollar fell for the first time in three days and headed for a weekly decline as its U.S. counterpart gained versus most of the major currencies, buoyed by investors seeking a haven from falling asset prices.

“The U.S. dollar is back up again overnight on the global equity sell-off and risk-aversion trade,” said Steven Butler, director of foreign-exchange trading in Toronto at Scotia Capital, a unit of Canada’s third-largest bank.

The Canadian dollar weakened 0.3 percent to C$1.2580 per U.S. dollar at 8 a.m. in Toronto, from C$1.2547 yesterday. The currency dropped 1.2 percent this week. One Canadian dollar buys 79.48 U.S. cents.

Canada’s currency will strengthen to C$1.25 against the U.S. dollar by the end of the first quarter, according to the median forecast in a Bloomberg News survey of 39 economists. Scotia Capital predicts the loonie, as Canada’s dollar is known, will advance to C$1.22 in that period.

The MSCI World Index, a benchmark index for 23 developed markets, fell 1.2 percent. The index is one of the Canadian dollar’s three most closely correlated indicators, along with crude oil and base metals, according to RBC Capital Markets.

Canadian consumer prices fell 0.7 percent in December, the third consecutive monthly drop, as energy prices plunged, Statistics Canada said today in Ottawa.

The effect of the report on the currency was “minimal,” said Butler. “Most data is having a limited effect at the moment,” he said.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

Last Updated: January 23, 2009 08:09 EST