BLBG: Canada’s Dollar Rises as Mortgage Bailout Spurs Risk Appetite
Canada’s currency gained for the first time in three days on speculation President Barack Obama’s $75 billion plan to stem home foreclosures will bolster the U.S. economy, boosting demand for riskier assets.
“On the face of it, the $75 billion plan is a little more expansive than the market had been expecting,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “A little more aggressive policy making may help risk appetite in the short term.”
The Canadian dollar rose 0.4 percent to C$1.2601 per U.S. dollar at 10:53 a.m. in Toronto, from C$1.2654 yesterday. It touched C$1.2674 yesterday, the lowest in almost a month, as worries that eastern European banking losses would drive the global economy deeper into recession spurred investors to relatively safe assets like the U.S. dollar and Japanese yen. One Canadian dollar buys 79.36 U.S. cents.
“The loonie got clobbered yesterday on fears the economy might not rebound,” said David Watt, a senior currency strategist at RBC Capital Markets in Toronto. “Today people are saying the worst might be past and it’s time to dip our toes back in. That’s causing people to buy risk-sensitive and cyclically- sensitive assets like the loonie.”
The U.S. will use $75 billion to bring down interest rates and encourage mortgage loan modifications, the Treasury Department said in a statement. The department also said it would double the amount of stock purchases of Fannie Mae and Freddie Mac to as much as $200 billion of each company. Obama will announce details of the program at 10:15 a.m. in Phoenix, deputy White House spokesman Jen Psaki said.
The loonie, as Canada’s dollar is known, reached a four-year low of C$1.3017 on Oct. 28, and has touched the C$1.30 level twice since before rebounding.
Canada’s currency will trade at C$1.26 against the U.S. dollar until the end of June before rebounding to C$1.20 by year- end, according to the median forecast in a Bloomberg News survey of 43 economists.
The yield on the two-year government bond dropped two basis points, or 0.02 percentage point, to 1.198 percent. The price of the 2.75 percent security due in December 2010 climbed four cents to C$102.76.
