SF: Canada's Dollar Gains for Second Day as Equities, Copper Climb
Oct. 21 (Bloomberg) -- Canada's dollar climbed for a second day against its U.S. counterpart as equities and commodity prices advanced on speculation the global economic recovery will endure, boosting demand for currencies tied to growth.
Canada's currency, which reached parity last week against its U.S. counterpart, traded near the lowest since March versus the euro on reduced chances of interest rate increases. Canada's index of leading economic indicators unexpectedly dropped in September, the first decline since April 2009.
"With rate hikes off the table for a while in Canada and the market tying us so tightly to the U.S. economy, the Canadian dollar should continue to lag on the crosses," Blake Jespersen, director of foreign exchange at Bank of Montreal in Toronto, said via e-mail.
The loonie climbed 0.2 percent to C$1.0215 per U.S. dollar and dropped 0.3 percent to C$1.4271 against the euro at 9:06 a.m. in Toronto. It touched C$1.4334 versus the euro yesterday, the weakest level since March 1. One Canadian dollar buys 97.89 U.S. cents.
Shorter-term government bonds fell, driving the two-year yield up two basis points, or 0.02 percentage point, to 1.38 percent. The price of the 2 percent security maturing in December 2012 dropped 4 cents to C$100.25.
Reaching Par
The Canadian currency, nicknamed the loonie, reached par with the greenback on Oct. 14 for the first time since April. The Bank of Canada left its benchmark interest rate at 1 percent five days later and yesterday trimmed its growth projections.
Futures prices indicate the Bank of Canada may not raise interest rates for another six months. The rate on the six-month overnight index swap, a gauge of what investors think the policy rate will average during that time, closed yesterday at 1.05 percent, down from 1.17 percent on Sept. 16, indicating rate- rise bets are dwindling.
The greenback fell against 12 of its 16 major counterparts and is the worst performing major currency during the past three months on speculation that Fed officials will signal further measures are needed as part of the central bank's quantitative- easing plan to support growth. The currency of Canada, which ships about two-thirds of its exports to the U.S., is the second-worst performer.
"When the U.S. dollar is under pressure we have, over the last three months, seen the Canadian dollar underperform versus the other majors," Jeremy Stretch, global head of foreign- exchange strategy at Canadian Imperial Bank of Commerce's CIBC World Markets unit, wrote via e-mail. "That scenario may continue to play out, but the conservative Canadian dollar may benefit versus the previously top performers when and if we see a U.S. dollar snapback."
--With assistance from Greg Quinn in Ottawa. Editors: Paul Cox, Dave Liedtka
