BLBG: Canadian Currency Appreciates as Stocks, Crude, Copper Advance
By Chris Fournier
July 25 (Bloomberg) -- Canada’s dollar rose for a second week against its U.S. counterpart as gains in worldwide stock markets boosted commodities such as crude oil and copper and improved the prospects for currencies tied to growth.
The Canadian dollar, known as the loonie, advanced 2.5 percent over the past five days as government and central bank officials said the nation’s economy is growing. It strengthened 4.5 percent last week after falling for the previous six on speculation an economic recovery might be delayed.
“Equities are serving as the main catalyst for Canadian- dollar gains,” said George Davis, chief technical analyst for fixed-income and currency strategy in Toronto at RBC Capital Markets, a unit of Canada’s largest lender. “Stock rallies are boosting commodities, hitting the U.S. dollar and sending risk aversion lower, all of which are positive for the Canadian dollar.”
The currency strengthened to C$1.0868 per U.S. dollar in Toronto, from C$1.1134 on July 17. It touched C$1.0795 yesterday, the strongest level since June 2. One Canadian dollar buys 92.02 U.S. cents.
Stocks gained for a second week, with the MSCI World Index rising in 10 straight sessions. The gauge of equities in 23 developed nations climbed 4.6 percent since July 17. The Standard & Poor’s 500 Index advanced 4.1 percent.
Correlations between stocks and Canada’s currency tightened. The loonie’s one-month coefficient with the MSCI World is 0.82, according to Bloomberg data. That compares with 0.72 this year, the data showed. A reading of 1 would indicate they move in lockstep. The currency’s one-month correlation coefficient with crude oil, Canada’s biggest export, is 0.44, the data showed.
‘Wave of Buying’
Crude for September delivery also gained for a second week, increasing 7.1 percent since July 17 to $68.05 a barrel in New York. Copper futures rose 4.1 percent for the week. Raw materials account for more than half of Canada’s export revenue.
The loonie’s July 23 “break below the previous C$1.0920 to C$1.0960 support area prompted another wave of Canadian dollar buying,” CIBC World Markets analysts Adam Fazio in New York and Shane Enright in Toronto wrote yesterday in a note to clients. Support refers to the lower boundary of a trading range where buy orders may be clustered. “From current levels we see little room for substantial short-term U.S. dollar losses.”
The Canadian dollar performed best versus its U.S. counterpart so far this month among the 16 most-active currencies tracked by Bloomberg, gaining 7 percent. It lagged behind all of them in June. The dollars of Australia and New Zealand, which like Canada’s track stocks and commodities, rose 1.3 percent and 1.6 percent in July, respectively.
Bottoming Slump
The greenback and yen fell the most this week.
Global recovery is “nascent” and the slump seems to be bottoming, Bank of Canada Governor Mark Carney said two days ago at a press conference. A stronger currency against the U.S. dollar is “an important brake” on growth, he said. That was more moderate than his comments last month, when he said the Canadian currency’s strength could “fully offset” economic gains, traders said.
“Carney could have taken the opportunity to talk the loonie lower, and he chose not to,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “That’s seen as quiet acquiescence to a stronger Canadian dollar.”
Bonds Fall
Canadian Finance Minister Jim Flaherty told reporters yesterday in Toronto he sees signs of growth in the nation, citing tax measures taken by his government as spurring the economy. Trade Minister Stockwell Day said in Singapore the Canadian economy is moving closer to a more “positive” state.
Canada’s government bonds fell for a second week, pushing the yield on the two-year note up 13 basis points, or 0.13 percentage point, to 1.33 percent. The price of the 1.25 percent security maturing in June 2011 dropped 23 cents to C$99.85. Canada’s government bonds lost investors 2.8 percent this year, according to a Merrill Lynch & Co. index.
“As long as the positive sentiment continues, emerging markets, commodities and commodity currencies should all gain at the expense of the U.S. dollar and the yen,” said Win Thin, a senior currency strategist at Brown Brothers Harriman & Co. in New York.
Canada’s statistics agency is due on July 30 to issue June data on industrial production and raw materials prices. The next day it reports on gross domestic product for May.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
