BLBG: Canadian Dollar Climbs to One-Month High as Stocks, Oil Advance
By Sapna Maheshwari and Chris Fournier
July 15 (Bloomberg) -- The Canadian currency touched the highest level in more than a month as gains by commodities and stocks boosted investor demand for higher-yielding assets such as commodity-linked currencies.
Canada’s dollar gained for a third day as crude oil reached $62 a barrel from near a two-month low and copper touched a one-month high. Raw materials account for more than half of Canada’s export revenue. A report showed that manufacturing in the U.S., the nation’s biggest trade partner, may be stabilizing.
“We’ve had a pretty dramatic rally in the Canadian dollar in the past three trading days,” said Kathy Lien, director of currency research at GFT Forex, an online currency-trading firm in New York. “From one side, people are looking at bottoming oil prices; from the other, people see improvements in the U.S. economy.”
The currency, known as the loonie, strengthened 1.6 percent to C$1.1149 per U.S. dollar at 4:21 p.m. in New York, from C$1.1329 yesterday. It gained as much as 1.9 percent and touched C$1.1118, the strongest since June 12. One Canadian dollar purchases 89.69 U.S. cents.
The Standard & Poor’s 500 Index was up 3 percent, extending its biggest three-day advance since March. It capped four weekly losses on July 10.
Crude oil for August delivery climbed as much as 4.2 percent to $62 a barrel in New York after touching $58.32 on July 13, the lowest since May 18. Oil is Canada’s biggest export. Copper for September delivery rose 4.1 percent to $2.393 a pound in New York and touched $2.4055, the highest since June 12. Gold gained 1.5 percent to $939.19 an ounce.
‘Well-Positioned’
“Given the fact that commodity prices have rebounded and are likely to rebound further once the economy is back on its feet, then Canada’s well-positioned to continue gaining,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank.
The loonie remained higher after a government report showed Canadian factory sales dropped 6 percent in May, more than twice what economists forecast. U.S. industrial production fell in June at the slowest pace in eight months, adding to signs the worst of the recession may be over, Federal Reserve figures showed today. Output declined 0.4 percent, less than forecast.
Today’s Canadian factory data followed other reports this week that signaled the nation’s economy may be improving. Central bank surveys released July 13 showed Canadian businesses are the most optimistic about their future sales prospects in almost a decade and that obtaining new loans is becoming less difficult. The jobless rate rose to 8.6 percent in June, less than forecast, and June housing starts increased to an annualized 140,700, more than forecast.
Rate Decision
The Bank of Canada is scheduled to meet July 21 on interest rates. The key rate has been at a record low of 0.25 percent since April. Bank Governor Mark Carney said at least twice last month, after the loonie posted in May the biggest monthly gain since 1950, that the currency’s “rapid rise” could threaten the economy.
“They’re going to hold policy as it is and reiterate that they’re not planning on moving rates until mid 2010,” said Camilla Sutton, director of currency strategy at Scotia Capital Inc. in Toronto, a unit of Canada’s third-largest bank. “I suspect what we’ll see is a similar statement to what we saw in the beginning of June.”
Canada’s dollar will strengthen to C$1.10 against its U.S. counterpart by mid-2010, according to the median forecast in a Bloomberg News survey of 36 economists.
Outperformed All
The loonie was the worst performer against the greenback in June among the 16 most-traded currencies tracked by Bloomberg amid concern an economic recovery would be delayed. So far this month it outperformed all of them.
“There has been U.S. dollar selling as the risks tilted, and few were confident of getting better levels to sell,” said David Watt, senior currency strategist in Toronto at RBC Capital Markets, a unit of Canada’s biggest bank. He said he’s looking for the Canadian dollar to pull back to between C$1.12 and C$1.13.
The U.S. dollar was the second-worst performer today among the 16 most active currencies, after the yen. Canada’s commodity-linked peers, the dollars of New Zealand and Australia, gained 1.7 percent and 1.4 percent, respectively, against the greenback.
Government bonds declined for a third consecutive day. The yield on Canada’s 10-year note rose nine basis points, or 0.09 percentage point, to 3.52 percent, the highest since June 19. The price of the 3.75 percent note maturing in June 2019 dropped 76 cents to C$101.94.
Canadian government debt lost investors 0.9 percent so far this month, after gaining 0.8 percent in June, according to a Merrill Lynch & Co. index.
Consumer prices fell 0.3 percent in June from a year earlier after rising 0.1 percent in May, Statistics Canada will report July 17, according to the median forecast in a Bloomberg survey of 22 economists.
To contact the reporters on this story: Sapna Maheshwari in New York at Smaheshwar11@bloomberg.net; Chris Fournier in Montreal at cfournier3@bloomberg.net
