By Chris Fournier Oct. 26 (Bloomberg) -- Canada’s dollar depreciated to the lowest level in almost three weeks as the head of the nation’s central bank reiterated concern the currency has grown too strong and crude oil and stocks tumbled. The currency dropped as Bank of Canada Governor Mark Carney stepped up warnings today he issued last week in a policy meeting and a quarterly report that its increasing strength is a threat to economic recovery. The Canadian dollar, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, came within three cents of parity with the U.S. dollar this month. “It’s probably continued fallout from comments from the central bank” driving down the Canadian currency, said Paul Ferley, assistant chief economist in Toronto at Royal Bank of Canada, the nation’s biggest bank. “Certainly the bank made it quite clear that they didn’t think economic conditions warranted moving ahead with any interest-rate hikes. The markets had started to factor in a hike in March but the bank’s comments dampened that.” Canada’s dollar weakened 1.5 percent to C$1.0694 per U.S. dollar at 4:42 p.m. in Toronto, from C$1.0538 on Oct. 23. It touched C$1.0697, the weakest level since it reached C$1.0715 on Oct. 6. One Canadian dollar buys 93.51 U.S. cents. The loonie gained 19 percent this year through Oct. 19, the day before central-bank policy makers’ latest meeting. It fell 3.5 percent since then. Oil Plunges Crude oil for December delivery dropped as much as 3.1 percent today to $77.97 a barrel on the New York Mercantile Exchange before trading at $78.74, down 2.2 percent. Last week it touched $82 a barrel, the highest level in a year. Crude is Canada’s biggest export. Stocks fell, with the Standard & Poor’s 500 Index dropping 1.2 percent. The MSCI World Index, a gauge of equities in 23 developed nations slid 1.4 percent, its fifth day of losses. A Canadian currency with greater strength than policy makers assumed could be a “significant further drag on growth and put additional downward pressure on inflation,” Carney said in his speech in Montreal today. The central bank last week raised to 96 U.S. cents its assumption for where the loonie will trade through 2011, from the 87 U.S. cents it forecast in July. Carney reiterated today the central bank’s economic outlook and its commitment to keep the benchmark lending rate at a record low 0.25 percent through June 2010. He is scheduled to testify tomorrow and the following day before parliamentary standing committees in Ottawa. Greenback Advances The U.S. dollar rose against 13 of the 16 most-actively traded currencies tracked by Bloomberg. It advanced the most against the 16-nation European common currency in almost two months, touching C$1.4845 per euro, on speculation its earlier drop to a 14-month low beyond $1.50 would be too hard to sustain. The Canadian dollar fell against 14 of the 16 currencies. “Funds have now drifted above the 21-day moving average at C$1.0539, an indicator that the U.S. dollar has not closed above versus the Canadian dollar since Oct. 2,” wrote Shane Enright, a currency strategist at CIBC World Markets in Toronto. He recommends selling the U.S. currency on “strength toward C$1.0600, risking a daily close above C$1.0675.” Technical analysts consider a financial instrument such as a currency or commodity rising above its moving average -- a measure of momentum -- to be an indicator that further gains may be imminent. ‘Away from Parity’ The loonie appreciated to C$1.0207 per U.S. dollar on Oct. 15, the strongest level since July 2008, as signs of a global economic recovery stoked demand for commodities, which account for more than half of Canada’s export revenue. The Canadian dollar last traded on a one-for-one basis with its U.S. counterpart in July 2008. “We’ll trade away from parity to the C$1.10 level,” said Michael Leavitt, a Montreal-based institutional-derivatives broker at MF Global Canada Co. He cited Carney’s renewed commitment to keep interest rates low, as well as the lack of strength in crude oil prices as reasons for the currency’s weakness. Steven Barrow, head of G10 research in London at Standard Bank Plc, changed his call on the greenback versus the Canadian dollar to long from neutral, meaning he believes the U.S. currency will gain and the loonie will weaken. Canada’s government bonds fell. The 10-year note’s yield rose five basis points, or 0.05 percentage point, to 3.54 percent and touched 3.55 percent, the highest level in a week. The price of the 3.75 percent security maturing in June 2019 fell 37 cents to C$101.66. The yield on the two-year bond increased two basis points to 1.53 percent. Canadian government bonds have lost investors 1.8 percent this year, according to a Merrill Lynch index. To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

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