Canada’s currency gained for a second day on speculation a weaker U.S. dollar will drive investor demand for commodities such copper and oil as a hedge against potential inflation. “The story now is more about U.S. dollar weakness,” said Eric Lascelles, chief economics strategist at TD Securities Inc. in Toronto. “Commodities aren’t jumping like they did for a while, but they’re still lending a bit of support, and the weak U.S. dollar helps the loonie in that respect.” The Canadian dollar, also known as the loonie, strengthened 0.5 percent to C$1.2554 per U.S. dollar at 10:25 a.m. in Toronto, from C$1.2609 yesterday. One Canadian dollar buys 79.66 U.S. cents. Copper futures have gained 8.5 percent this year. Oil rose today for the first time in three days. Commodities such as crude oil, copper and aluminum account for about half of Canada’s export revenue. The loonie rose less against the U.S. dollar than most of the 16 most-actively traded currencies. The Norwegian krone appreciated 3.3 percent against the greenback and the Swedish krona rose 2.5 percent on speculation European nations will intervene to shore up weakening banks. The Australian and New Zealand currencies rose more than 1.5 percent against the U.S. dollar. Those two currencies are the loonie’s “closest peers” because both Australia and New Zealand are commodity exporters, according to Lascelles. Growth Prospects “It’s one of those relative things on a day like this,” he said. “The Canadian dollar is doing fine, but not quite keeping pace given the extreme U.S. dollar weakness on tap.” The greenback may be nearing its peak against the loonie as investors begin to focus on Canada’s long-term growth prospects, according to Barclays Capital strategists Steven Englander and Mathieu Zaradzki. “We see near-term risk that global risk aversion will persist and take the U.S. dollar-Canadian dollar to C$1.30, but we do not see any breaches of this level as being sustained,” the strategists wrote in a note to clients yesterday. “We see the Canadian dollar emerging with a cyclical growth profile that is as good as or better than that of the U.S. dollar, with far fewer structural and policy negatives.” The greenback has risen 19 percent against Canada’s dollar in the past six months. Investors should buy options to sell the U.S. dollar in nine months at C$1.18, said the strategists. Canada’s currency will trade at C$1.26 against the U.S. dollar until the end of June before rebounding to C$1.21 by year- end, according to the median forecast in a Bloomberg News survey of 44 economists. Correlation The Standard & Poor’s 500 Index gained 0.3 percent and the Dow Jones Industrial Average rose 0.2 percent. Movements in the Canadian dollar track the Dow with a correlation of 0.77, according to Maria Jones, a currency trader at TD Securities Canada Inc. in Toronto. That’s more than other indicators including crude oil and the spread between yields on two-year bonds in Canada and the U.S. A correlation of 1 would mean the currency marched in lock-step with the index. The yield on the two-year government bond rose three basis points, or 0.03 percentage point, to 1.29 percent. The price of the 2.75 percent security due in December 2010 fell 7 cents to C$102.55.

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