Loonie Falls as Carney Says Bank Will Weigh U.S. Outlook in Rate Decisions

Bloomberg.com   |  September 10 2010 1:46 EDT

Canada’s dollar weakened versus its U.S. counterpart, reversing a rise to a three-week high, as stocks pared gains and Bank of Canada Governor Mark Carney said policy makers will be “careful” in weighing the implications of slower U.S. growth on further interest-rate boosts.

The loonie, as the currency is nicknamed for the bird’s image on the C$1 coin, fell as traders speculated a 1.5 percent advance over the past two weeks couldn’t be sustained.

“The market was caught short the U.S. dollar versus the Canadian,” said Firas Askari, head currency trader in Toronto at Bank of Montreal, Canada’s fourth-largest lender. A short position is a wager that a currency, in this case the greenback, will fall. Traders are covering bets, meaning buying the greenback against the loonie, he said.

The Canadian currency depreciated 0.3 percent to C$1.0370 per U.S. dollar at 12:41 p.m. in Toronto. One Canadian dollar buys 96.43 U.S. cents.

The loonie earlier rose as much as 0.5 percent to C$1.0288, the strongest since Aug. 19, after a Statistics Canada report showed employers expanded payrolls in August by a net 35,800 jobs after cutting 9,300 positions in the previous month. The median forecast in a Bloomberg News survey of 15 economists was for an increase of 30,000 jobs. The unemployment rate rose to 8.1 percent from 8 percent as more people entered the workforce.

Canada’s dollar was still poised for a 0.3 percent gain over the past five days, strengthening after the Bank of Canada raised the target rate for overnight lending between banks on Sept. 8 to 1 percent from 0.75 percent. The boost matched quarter-percentage-point increases in June and July. Investors speculated the bank may raise the rate again by year-end.

The Standard & Poor’s 500 Index was up 0.2 percent after rising earlier as much as 0.6 percent.