BLBG: Canada Dollar Reaches 2-Year High Versus Euro After ECB Rate Cut
The Canadian dollar strengthened to a two-year high against the euro after the European Central Bank cut interest rates to stimulate the bloc’s economies.
The loonie, as the currency is nicknamed, reached a seven- week high against the greenback, as reports indicated faster- than-forecast jobs growth in the U.S., the nation’s largest trading partner. China cut interest rates for the second time in a month and the Bank of England said it would extend its asset- purchase program.
“The stimulus measures are going to be to some degree good for the commodity currencies,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit. “We’re seeing risk-on in the sense of equities here.”
Canada’s currency gained 1 percent to C$1.2562 per euro at 10:15 a.m. in Toronto, touching the strongest level since June 2010. The loonie weakened 0.3 percent to C$1.0155 per U.S. dollar, after reaching the highest level since May 16. One Canadian dollar buys 98.47 U.S cents.
Unattractive Bonds
Government bonds fell, pushing the yield on the nation’s 10-year benchmark bonds up three basis points, or 0.03 percentage point, to 1.74 percent. The Bank of Canada is scheduled to release details today on a five-year note auction on July 11.
Pacific Investment Management Co.’s Ed Devlin said Canadian bonds don’t provide much value for investors as low yields limit scope for capital gains and global uncertainty prompts the world’s largest bond fund manager to take “defensive” positions.
Devlin, executive vice president and head of the Canadian portfolio management team at Pimco, said he’s underweight on Canadian short-term fixed income and has recently preferred bonds that allow investors to hedge against consumer-price gains.
“We’re not particularly long the Canadian market,” Devlin, a London-based portfolio manager, said in a telephone interview from Toronto. “I’m pretty defensive on the front end. There is not a lot to like about interest rates down here.”
The ECB cut its key interest rate by 25 basis points to a record 0.75 percent and reduced its deposit rate to zero for the first time. The shared currency weakened against 14 of its 16 major peers as ECB President Mario Draghi said some risks to growth have “materialized.” The pound dropped against the Canadian dollar as the Bank of England extended its asset- purchase program.
Canada’s central bank has kept its benchmark rate unchanged at 1 percent since September 2010.
Jobless Rates
Canada’s jobless rate is forecast to stay unchanged from May at 7.3 percent, according to a Bloomberg survey of economists before Statistics Canada agency release data July 6. The country is projected to have added 5,000 jobs in June, compared with a gain of 7,700 the month before.
Roseland, New Jersey-based ADP Employer Services showed U.S. companies added 176,000 workers this month. The median forecast of economists surveyed by Bloomberg News called for a 100,000 advance.
“The employment situation in Canada does look relatively stronger than the U.S.,” Osborne said. “It’s still a very slow job recovery situation in the U.S.”
A U.S. government report this week is projected to show employers added fewer than 100,000 workers for a third month in June. U.S. payrolls added 90,000 workers last month after a 69,000 gain in May, a Bloomberg survey showed before the Labor Department data on July 6.
The loonie has gained 1.9 percent this year among 10 developed-nation currencies in Bloomberg Correlation-Weighted Indexes, with the U.S. dollar adding 1.2 percent.
To contact the reporter on this story: Lindsey Rupp in New York at lrupp2@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
