Canada’s Dollar Drops as U.S. Currency Climbs, Crude Oil Slumps

[Enivid]

Canada’s currency fell for the first time in three days after the U.S. Senate blocked a bailout for General Motors Corp. and Chrysler LLC, pushing the U.S. currency higher and crude oil back below $45 a barrel.

“News about the automakers is not good for Canada or for the Canadian dollar,” said Aaron Fennell, a Toronto-based futures and currency broker at MF Global Canada Co., a unit of MF Global Ltd., the world’s largest broker of exchange-traded futures and options. “If we’re not selling goods to the U.S., that undermines the value of the Canadian dollar.”

The Canadian dollar fell 1 percent to C$1.2488 per U.S. dollar at 4:48 p.m. in Toronto, from C$1.2365 yesterday. One Canadian dollar buys 80.07 U.S. cents. Gains were briefly pared after the U.S. Treasury said it is willing to provide financing to the automakers until Congress reconvenes.

The U.S. dollar rose against most of the 16 major currencies tracked by Bloomberg including the Canadian dollar. The exceptions were the yen, euro, Swiss franc and Danish krone.

“News about the U.S. carmakers has raised the level of risk aversion on the markets,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “The dollar is rallying but it’s rallying against weaker currencies more.”

The Canadian currency may weaken beyond C$1.30 per U.S. dollar in the next quarter if oil makes a “a sustained break below $40 a barrel,” Gallo said.

Fennell predicts the loonie, as Canada’s dollar is known, will strengthen next year to at least C$1.11 because Canada’s economy is in better shape than that of the U.S.

From Bloomberg News.