BLBG:Canadian Dollar Advances, Has Weekly Rally on Eased European Debt Turmoil
The Canadian dollar rose against its U.S. counterpart and had a weekly advance as optimism increased that action by European leaders will ease the region’s debt crisis, buoying risk assets.
The loonie, as the currency is also known, was supported after the Italian Senate approved debt-reduction measures, paving the way for a new government, and as Greece’s Lucas Papademos was sworn in as prime minister. The Canadian currency erased losses today after a report showed U.S. consumer confidence rose in November more than projected and oil climbed.
“We have tensions in the market easing, and that’s helped oil prices and the commodity currencies in general,” said Kathy Lien, director of currency research at the online trading firm GFT Forex in New York. “A leadership change in Italy means that the prospect for more volatility and more slides in equities has declined, and for risky assets, that’s good.”
Canada’s currency appreciated 0.6 percent to C$1.0104 per U.S. dollar at 5 p.m. in Toronto, extending its weekly rally to 0.8 percent. One Canadian dollar buys 98.97 U.S. cents.
The Thomson Reuters/University of Michigan preliminary index of U.S. consumer sentiment climbed to 64.2 this month, the highest level since June, from 60.9 in October. The median estimate of 67 economists in a Bloomberg News survey was for a reading of 61.5. The U.S. is Canada’s biggest trading partner.
Currency Volatility
Implied volatility for the currencies of the Group of Seven nations touched 13.68 yesterday, the highest level since Oct. 6, according to a JPMorgan Chase & Co. index. It was 12.99 today. Implied volatility, which traders quote and use to set option prices, signals the expected pace of swings in the underlying currency.
The Standard & Poor’s/TSX Composite Index rose 1.4 percent, and the S&P 500 Index added 2 percent. Futures on crude oil, Canada’s largest export, increased 1.7 percent to $99.22 a barrel in New York trading. Canada’s bond market was closed today in observance of Remembrance Day.
Italy’s Senate approved debt-reduction measures to shore up investor confidence and pave the way for a new government that may be led by former European Union Competition Commissioner Mario Monti.
The timing of the ballot was moved forward after Prime Minister Silvio Berlusconi’s parliamentary majority unraveled this week, leading bond yields to surge to euro-era records.
Italian Bonds
The yield on the nation’s benchmark 10-year bond rose above 7 percent this week, increasing concern Italy will follow Greece, Portugal and Ireland in seeking financial assistance from the European Union and the International Monetary Fund.
Greek President Karolos Papoulias gave Papademos the mandate to form a government yesterday after agreement from Prime Minister George Papandreou and opposition party leaders.
“We’ve still got a ways to go,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank in Toronto. “The outlook for the euro is still that it’s probably headed toward more weakness. In that environment, we would expect the Canadian dollar to struggle somewhat.”
The loonie is up 1.3 percent this week against nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Currency Indexes. The yen has increased 1.8 percent, and the U.S. dollar is up 0.3 percent.
To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
