BLBG: Canada’s Dollar Strengthens on Optimism Over Smaller Deficits
Canada’s dollar climbed against its U.S. counterpart for the third straight day on speculation the nation’s fiscal deficit will be lower than that of other countries, making the currency more attractive.
Canada’s currency, dubbed the loonie, gained 0.9 percent this week. An official said the country’s budget will include a deficit of C$34 billion ($27 billion) in 2009, mostly attributable to measures to stimulate the economy.
“We’re seeing general Canadian-dollar strength at the moment,” said Shaun Osborne, Toronto-based chief foreign- exchange strategist at TD Securities Inc. “The fact that we are moving into deficits has caught people’s attention, but it’s only 2 percent of gross domestic product.”
The Canadian dollar strengthened 1.8 percent to C$1.2325 per U.S. dollar at 4:43 p.m. in Toronto, the strongest since Jan. 14, from C$1.2547 yesterday. One Canadian dollar buys 81.14 U.S. cents.
Canadian Finance Minister Jim Flaherty’s budget will also include a deficit of C$30 billion in 2010 as part of a government effort aimed at reviving the ailing economy, the official said yesterday. The budget is due on Jan. 27.
Canada’s deficit would compare with shortfalls of “at least 8 percent and probably well into double digits in the U.S. and similar deficits elsewhere in Europe,” Osborne said. “We’re probably going to move back to C$1.2350 or C$1.2375. That seems to be the path of least resistance.”
The loonie, as Canada’s currency is known, outperformed all of the 16 most actively traded currencies.
Consumer Prices
Crude oil futures rose to $45.87 a barrel in New York, extending the gain this year to 2.8 percent. Crude is the largest component in the Bank of Canada’s Commodity Price Index, accounting for 21 percent.
Canadian consumer prices fell 0.7 percent in December, the third consecutive monthly drop, as energy prices plunged, Statistics Canada said today in Ottawa. Oil prices are 49 percent lower than they were 12 months ago.
“The budget release should probably provide a shot to the Canadian economy that we haven’t had yet,” said Tyson Wright, senior currency trader in Victoria, British Columbia, at Custom House. “Finally our government is showing some sort of action on that front, and that’s slightly Canadian-dollar positive.”
The yield on the two-year government bond rose 11 basis points, or 0.11 percentage point, to 1.24 percent, the highest since Dec. 23. The price of the 2.75 percent security due in December 2010 fell 20 cents to C$102.74.
