Canada’s dollar retreated against its U.S. counterpart for the first time in five weeks as the Bank of Canada suggested lending rates will remain unchanged and commodities fell on concern China will seek to curb growth. The loonie, as the currency is nicknamed for the waterfowl on the C$1 coin, dropped below parity for the first time in two weeks on Jan. 20 before paring losses against the greenback on signs the U.S. economic recovery is gathering steam. Consumer prices in Canada, to be reported Jan. 25, increased 0.1 percent in December, according to economists surveyed by Bloomberg. “The very neutral-sounding statement from the bank is one of the principal reasons why the Canadian dollar has slipped a little,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank in Toronto. “More important for Canada overall is the state of affairs in the U.S. economy.” The currency depreciated 0.2 percent to 99.31 cents per U.S. dollar at 5 p.m. yesterday in Toronto, from 99.09 cents on Jan. 14. The loonie weakened to as much as $1.0031 on Jan. 20, the least since Jan. 4. One Canadian dollar buys $1.00695. The yield on Canada’s benchmark 10-year note increased six basis points to 3.32 percent, from 3.27 percent on Jan. 14. The price of 3.5 percent bond due in June 2020 fell 46 cents to C$101.40. Yields fell six basis points on two-year securities this week to 1.73 percent. Canada plans to auction C$3 billion ($3 billion) of two- year securities on Jan. 26. The Bank of Canada’s Dec. 15 sale of C$3 billion of the securities drew a yield of 1.787 percent. Bank of Canada The Canadian central bank said Jan. 18 that a “gradual” reduction of monetary stimulus through 2012 will keep inflation under control as it held the target rate for overnight loans between commercial banks at 1 percent, where it’s been since September. China’s economic growth accelerated to 9.8 percent, sending stocks lower on Jan. 20 from Asia to Europe on concern Chinese policy makers will raise interest rates and stem the expansion. Consumer-price inflation eased to 4.6 percent in December. The Standard & Poor’s/TSX Composite Index dropped 1.5 percent this week. Crude oil fell this week on rising U.S. stockpiles and speculation China will increase interest rates to curb inflation. Crude is the largest Canadian export to the U.S., the nation’s biggest trading partner. Rate Speculation The Bank of Canada bank predicted a “modest” economic recovery hampered by a strong currency that limits exports, Finance Minster Jim Flaherty told reporters yesterday in Vancouver. “We’re done with the Canadian peso.” Flaherty’s decision Jan. 17 to tighten rules in an attempt to curb record household borrowing may allow the Bank of Canada to hold off on raising interest rates before May at the earliest, David Rosenberg, chief economist at Gluskin Sheff & Associates in Toronto, said in a note to clients Jan. 19. “With the housing market clearly having the air taken out of the balloon, we see no need for the Bank to upset the apple cart any time soon,” Rosenberg wrote. “Our read of the body language is that they do not have a twitchy finger at all.” The Canadian dollar has advanced 3.4 percent against the U.S. dollar over the past three months, and gained 19 percent over the past four years, triggering record trade deficits for the country. Bank of Canada Governor Mark Carney said Jan. 19 that while a weakening dollar is partly responsible for the country’s deteriorating trade performance, low productivity gains are also to blame. To contact the reporter responsible for this story: Charles Mead in New York at cmead8@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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