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Wednesday, July 06, 2011

Canada’s Dollar Depreciates After China Raises Benchmark Interest Rates

Canada’s dollar fell versus its U.S. counterpart, touching the lowest in almost a week, after the Chinese government increased interest rates to cool its economy, sapping demand for higher-yielding currencies.

Canada’s dollar rose for a second day against the euro as traders sold the 17-nation common currency after Moody’s Investors Service cut Portugal’s credit rating to junk yesterday.

“Risk is off the table certainly this morning, given the move by China to raise interest rates,” said Neil Mellor, a currency strategist at Bank of New York Mellon Corp., by phone from London. “Markets had already come under a little pressure overnight because of the downgrade of Portugal by Moody’s. When risk is taken off the table, people buy the U.S. dollar back.”

The Canadian currency dropped 0.3 percent to 96.61 cents per U.S. dollar at 9:28 a.m. in Toronto, compared with 96.34 cents yesterday. One Canadian dollar buys $1.0352. It rose 0.4 percent to C$1.3844 per euro.

Investors should short the euro against the Canadian dollar because “lingering uncertainty” over peripheral countries will drag down the 17-nation common currency, Valentin Marinov and Andrew Cox, strategists at Citigroup Inc., wrote in a note to clients today.

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