Canada’s dollar rose versus its American counterpart after a report showed eight banks failed the European Union stress tests and concern increased the region’s sovereign debt problems will worsen. The loonie, as the currency is nicknamed, outperformed all of its 16 major peers and is headed for a five-day gain versus the greenback. It pared gains after a report showed Canadian factory sales declined four times faster than economists forecast in May. “Canada is still looking like a relatively attractive destination for foreign investors,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank in Toronto. “The stress tests add to the impression that Europe is bumbling along here and heading to a potential day of reckoning.” The Canadian currency appreciated 0.8 percent to 95.32 cents per U.S. dollar at 5:06 p.m. in New York, from 96.06 cents yesterday. One Canadian dollar buys $1.0491. The eight banks that failed the EU stress tests had a combined capital shortfall of 2.5 billion euros ($3.5 billion), regulators said. All banks tested in Italy, Germany, France, the U.K. and Ireland passed, the lenders said today. Europe’s Banks The assessments are the first by the European Banking Authority since it was set up earlier this year. Last year’s tests by its predecessor were criticized for being insufficiently tough because banks were shown to need only 3.5 billion euros more capital, a 10th of the lowest analyst estimate. Banks that fail the stress test must present a plan to raise more capital within three months. “In the environment of concern about financial-sector strength, the Canadian dollar is a fairly attractive currency relative to its peers,” said David Watt, senior currency strategist at Royal Bank of Canada’s RBC Capital unit in Toronto. Canadian factory sales fell 0.8 percent to C$46 billion ($48 billion) on a seasonally adjusted basis, Statistics Canada said today in Ottawa. Economists predicted a 0.2 percent decrease, based on the median of 19 estimates in a Bloomberg News survey. Economic growth may have been less than 2 percent in the second quarter in part because of factory disruptions linked to natural disasters in Japan, according to Bank of Canada Governor Mark Carney. Bond Yields Yields on 10-year Government of Canada bonds fell eight basis points to 2.87 percent. The the price of the 3.25 percent security due in June 2021 rose 66 cents to C$103.22. A basis point is 0.01 percentage point. Foreign investors purchased more Canadian bonds than they sold in every month but one since December 2008, according to Statistics Canada data through April. The agency will report international securities transactions for May on July 18. “The Canadian dollar is a bit of a haven from the U.S. because if you want to invest in North America, you don’t have the fiscal problems in Canada as you do in the states, so you get an inflow of money,” said Paul Robson, a senior foreign- exchange strategist at Royal Bank of Scotland Group Plc, by phone from London. “You do see foreign buyers of bonds shifting their money out of Treasuries and into Canadian bonds, and that’s supportive.” Standard & Poor’s said yesterday there’s a 50 percent chance the U.S. will lose its top credit rating. U.S. lawmakers are debating a 10-year budget package aimed at cutting the deficit and raising the nation’s $14.3 trillion debt limit by an Aug. 2 deadline. To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Chris Fournier in Halifax, Nova Scotia at cfournier3@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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