Canada’s currency strengthened versus the greenback for the first time this week as crude oil gained and signs of a slowing U.S. recovery spurred investors toward currencies backed by relatively strong balance sheets. The loonie, as Canada’s legal tender is sometimes known, rose against 12 of its 16 most-traded counterparts as crude oil futures, the nation’s biggest export, gained 2.8 percent and stocks rose. The U.S., Canada’s largest trading partner, grew at a 2.7 percent annual rate in the first quarter, less than previously calculated. “As long as commodity prices stay fairly solid, you’ll see the Canadian dollar perform well, just based on the fact that their books are in order,” Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc., said by phone from New York. “Last year when you were predicting who would come out of recession fastest, a lot of people looked at Canada. They didn’t have the same problems we did.” The Canadian dollar rose 0.7 percent to C$1.0362 per U.S. dollar at 1:30 p.m. in Toronto, from C$1.0430 yesterday, when it touched C$1.0470, the weakest level since June 9. One Canadian dollar buys 96.54 U.S. cents. The loonie is emerging as a reserve currency for central bankers seeking alternatives to debt-laden governments in Europe, the U.S. and Japan. Canada, the last member of the Group of Seven industrialized nations to enter the global recession, was the first to recover, thanks partly to having the G-7’s lowest debt-to-GDP ratio and the world’s soundest financial system, according to the World Economic Forum. Russia’s Reserves Russia may add Australian and Canadian dollars to its international reserves for the first time after fluctuations in the U.S. currency and euro, Alexei Ulyukayev, the first deputy chairman of the nation’s central bank, said in an interview in Moscow on June 15. UBS AG, the world’s second-largest foreign- exchange trader, predicts the International Monetary Fund may include the Canadian dollar in a basket of currencies it uses in transactions. Canada’s dollar was poised for a 1.4 percent drop this week. Signs of a faltering North American recovery combined with renewed concern that deficits in some euro-area countries may spiral out of control sapped investor confidence, prompting a flight to the perceived safety of currencies such as greenback and yen. ‘Less Supportive’ Canadian retail sales fell in April five times more than forecast, while inflation slowed last month on moderating prices for gasoline and clothing, Statistics Canada said in separate reports this week. Sales of existing homes in the U.S. unexpectedly declined. Financial conditions have become “less supportive of economic growth,” the U.S. Federal Reserve said in a June 23 policy statement. “Speculative sentiment is definitely against the pro- cyclical currencies and the risk trade,” Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London, said by e-mail. “Poor money-market conditions are once again weighing on risk and boosting demand for safe havens and U.S. dollar funding. The Canadian dollar’s weakness of late is a product of increased demand for U.S. dollar funding and financial market tensions in general.” The yield on Canada’s 10-year benchmark bond dropped 13 basis points, or 0.13 percentage point, to 3.20 percent this week. It touched 3.175 percent on June 24, the lowest level in more than a year. The 3.5 percent security maturing in June 2020 gained C$1.09 to C$102.58. To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

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