BLBG: Canadian Dollar Climbs to Seven-Month High as Oil, Stocks Gain
Canada’s currency climbed for a third straight day, touching the strongest level since October as gains in crude oil and North American stocks spurred demand for higher-yielding assets.
“Oil prices at cyclical highs for the year, as well as positive news on the equities side, are giving the Canadian dollar a boost against the U.S. dollar,” said Dustin Reid, director of currency strategy in Chicago at RBS Securities Inc.
The Canadian currency, known as the loonie, appreciated as much as 1.7 percent to C$1.1364 per U.S. dollar, the strongest since Oct. 14. It traded at C$1.1413 at 4:23 p.m. in Toronto, from C$1.1558 yesterday. One Canadian dollar purchases 87.62 U.S. cents.
Crude for July delivery rose as much as 4.4 percent to $62.26 a barrel on the New York Mercantile Exchange, the highest level since November. Oil is up 39 percent this year. Energy products including crude oil, natural gas and coal accounted for a quarter of Canada’s export revenue last year.
Canada’s benchmark stock gauge, the Standard & Poor’s/TSX Composite Index, gained 1.3 percent. The S&P 500 Index rose as much as 1.8 percent before closing down 0.5 percent.
“So far all the stars seem to be lining up in favor of the Canadian dollar,” Jacqui Douglas, a currency strategist in Toronto at TD Securities Inc., wrote in a note to clients today. “There isn’t much getting in the way of an eventual move down to C$1.0465.”
The loonie extended gains as the greenback’s drop accelerated after minutes of the April Federal Reserve meeting indicated some U.S. policy makers thought the central bank might need to boost its purchases of assets to spur growth, fueling concern it may flood the market with dollars.
Core Inflation
Consumer prices rose 0.4 percent in April from a year ago, compared with 1.2 percent the previous month, Statistics Canada said today in Ottawa. That trailed the 0.6 percent median forecast of 21 economists in a Bloomberg survey.
The annual inflation rate excluding gasoline and seven other volatile items -- the so-called core rate -- slowed to 1.8 percent last month from 2 percent in March.
Canadian core inflation “remains in a ‘Goldilocks’ type of situation that’s not too hot and not too cold,” TD’s Douglas wrote. The firm is a unit of Canada’s second-biggest bank.
The U.S. dollar fell against all but two of the 16 most traded currencies tracked by Bloomberg, with the exceptions being South Korea’s won and the Mexican peso. The greenback is the worst performer among major currencies so far this month as investors shunned havens in favor of riskier assets such as stocks and commodity-linked currencies on optimism the global economy will grow.
Greenback ‘Vulnerable’
Investors should buy the currencies of Canada and Norway against the U.S. dollar because they “stand out as good trades” on signs the global recession is easing, Morgan Stanley said today.
“We generally think the U.S. dollar is vulnerable,” Ron Leven, an executive vice president and strategist at Morgan Stanley in New York, said in an interview. “We think those two currencies have particular upside potential.”
Morgan Stanley said it increased bets that the U.S. dollar will fall against its Canadian counterpart and predicted the currency pair may “re-test last year’s lows near C$1.”
Canada’s dollar reached parity with its U.S. counterpart for the first time in three decades in September 2007 following a 60 percent climb over five years. The gains were fueled by rising prices for commodities, which account for more than half of Canada’s export revenue.
The loonie will weaken to C$1.19 versus the U.S. dollar by year-end, according to the median forecast in a Bloomberg survey of 42 analysts and economists.
Government Bonds
Canadian government bonds lost investors 1.3 percent so far this year, according to a Merrill Lynch & Co. index. The yield on the 10-year note was little changed today at 3.14 percent. The price of the 3.75 percent security due in June 2019 added 3 cents to C$105.21.
Eight of 11 economists surveyed by Bloomberg this month predicted Canada’s economy will return to growth next quarter as rising home and car sales, unexpected gains in building permits and employment, easing credit conditions and higher commodity prices signal Canada’s slump may be nearing an end.
