Canadian dollar declines to July low as U.S. sequestration looms

The Canadian dollar reached the lowest level since July against its U.S. counterpart as commodities slipped and policy makers in the world’s largest economy seek to avoid $1.2 trillion in automatic budget cuts, known as sequestration, set to begin next month.

The currency declined for a third straight day as crude oil, the nation’s biggest export, fell and data showed foreign investors reduced their holdings of Canadian securities for the first time since June. Bank of Canada Governor Mark Carney said in a CTV News interview on Feb. 15 that recent signs of weakness in the housing market may persist over several years.

“Some of the Canadian-dollar weakness is due to muted action in commodities,” David Doyle, a strategist at Macquarie Capital Markets, said by phone from Toronto. “When you look at the commodity space, it could help to explain some of the weakness, given the U.S. dollar performing relatively well.”

The loonie, as the currency is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.2% to C$1.0125 per U.S. dollar at 11:14 a.m. in Toronto after touching $1.0138 earlier, the weakest since July 26. One Canadian dollar buys 98.77 U.S. cents.

Government bonds rose, pushing yields on Canada’s benchmark 10-year debt down two basis points, or 0.02 percentage point, to 2%. The price of the 2.755 securities maturing in June 2022 increased 15 cents to C$106.35.

Canada’s dollar has fallen 1.5% this year among the 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The U.S. dollar has gained 0.8%, and the euro has jumped 2.2%.

‘Quite Weak’

The loonie is “quite weak,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia, said by phone from Toronto. “Anything that’s negative for U.S. gross domestic product is negative for Canada.”

President Barack Obama called on Congress today to pass a smaller package of spending reductions and close loopholes to delay the budget cuts, known as sequestration, set to begin next month. Republicans have said they won’t consider raising revenue beyond the $650 billion tax increase on top earners the president won as part of the budget deal enacted on Jan. 2.

U.S. lawmakers agreed to the spending cuts, to be spread over nine years, as part of a 2011 deficit-reduction deal to raise the debt limit. The reductions were supposed to be so onerous that Congress and the president would never let them occur and would find a plan to replace them. The U.S. is Canada’s largest trade partner.

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