BLBG: Canadian Dollar Gains to Highest in Two Weeks on Risk Appetite
By Chris Fournier
Nov. 3 (Bloomberg) -- Canada's currency rose to the highest in two weeks as the nation's stocks strengthened amid increased risk appetite.
The Canadian dollar has increased 6.8 percent since Oct. 24, paring its decline this quarter to 11 percent.
``There's a little bit more greed and a little bit less fear,'' said John Rothfield, Banc of America Securities LLC senior currency strategist in San Francisco. ``Some markets have bottomed out and some of the credit markets have unclogged. People are glad to have October behind them.''
Canada's currency, dubbed the loonie for the aquatic bird on the one-dollar coin, climbed as much as 2.2 percent to C$1.1858 per U.S. dollar, from C$1.2125 on Oct. 31. It traded at C$1.1927 at 11:35 a.m. in Toronto. It reached C$1.1744 on Oct. 20. One Canadian dollar buys 83.85 U.S. cents.
Rothfield predicts the loonie may appreciate to between C$1.10 and C$1.15 ``if we return to more risk-neutral levels over the next month or so.''
The London interbank offered rate, or Libor, that banks charge one another for three-month loans in U.S. currency slid to the lowest since the Sept. 15 collapse of Lehman Brothers Holdings Inc.
`A Little Better'
``The market seems to be feeling a little better,'' said Steven Butler, director of foreign-exchange trading at Scotia Capital Inc. in Toronto. ``Libor spreads are still moving in, stocks look OK and after a wild two weeks, I think the Canadian dollar may have been a little oversold.''
The MSCI World Index, a gauge of stocks in 23 developed nations, added 0.3 percent to 959.92, advancing for a fifth day. Canada's primary index, the Standard & Poor's/TSX Composite Index, rose 0.2 percent in Toronto.
``The Canadian dollar should strengthen against the U.S. dollar this week, especially if credit concerns continue to abate,'' said Tyson Wright, senior currency trader at Custom House in Victoria, British Columbia. Recent declines in Canada's dollar were ``overdone,'' said Wright, who puts the loonie's ``fair value'' at C$1.20.
Canada's dollar appreciated 1.5 percent against the euro and 3 percent versus the British pound. The European Central Bank and the Bank of England will cut borrowing costs this week by half a percentage point, according to economists surveyed by Bloomberg. The Reserve Bank of Australia is also expected to reduce borrowing costs this week.
Rate cuts ``should take the steam out of those currencies,'' Wright said.
The two-year government bond's yield fell 1 basis point, or 0.01 percentage point, to 2.02 percent. The price of the 2.75 percent security due in December 2010 climbed 1 cent to C$101.50.
The 10-year note's yield rose 4 basis points to 3.80 percent. The price of the 4.25 percent security maturing in June 2018 fell 30 cents to C$103.65.
The 10-year bond yielded 178 basis points more than the two- year security. The so-called yield curve is the steepest since May 2004.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
