Canada’s dollar strengthened for the first time in four days amid the lowest volatility since August after leaders of Germany and France said revised budget rules for nations that share currency may be done a month early. Canada’s currency fell earlier to the lowest level in more than two weeks on speculation growth in the nation’s economy is cooling as the euro-area debt crisis lingers. Canadian consumer confidence rose in the fourth quarter from a two-year low on optimism about real estate prices and the global economy, according to a Nanos Research poll. “On the crosses, the Canadian dollar is still in pretty decent shape,� said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit, in a telephone interview, referring trades against currencies other than the U.S. dollar. “In terms of the risk issue, that’s still what seems to be one of the biggest correlating factors for the Canadian dollar. We’re still as subject to headline risk and tape bombs as we were before Christmas.� The currency, nicknamed the loonie, advanced 0.5 percent to C$1.0235 per U.S. dollar at 5 p.m. Toronto time. It weakened as much as 0.3 percent earlier. One Canadian dollar buys 97.70 U.S. cents. Price Swings Implied volatility for one-month options on the Canadian dollar versus the greenback fell to as low as 9.7 percent from 10.06 percent Jan. 6. Implied volatility, which traders quote and use to set option prices, signals the expected pace of swings in the underlying currency. Declining crude prices capped gains in the currency, with futures down 0.6 percent to $101.34 a barrel in New York. Yields on 10-year Government of Canada bonds (GCAN10Y) rose two basis points, or 0.02 percentage point, 1.96 percent. The price of the 3.25 percent security due in June 2021 fell 19 cents to C$111.09. Ten-year Canadian government bonds yielded the same as U.S. Treasuries of equivalent maturity, from six basis points more at the end of 2011. Investors should establish short U.S. dollar positions versus the Canadian dollar, which should be trading “very close to parity� based on a fair-value model that looks at five-year swap spreads, crude oil and the Standard & Poor’s 500 Index, according to Robert Sinche, global head of foreign-exchange strategy at Royal Bank of Scotland Group Plc in Stamford, Connecticut. Short Bet Sinche said he recommends shorting the greenback at C$1.0260 because the currency may weaken to the 200-day moving average at 99.14 Canadian cents, he said. A short position is a bet that a currency will depreciate. Investors should exit the trade if the U.S. dollar closes for two days above C$1.0424. The Canadian currency fell from almost a one-year high against the euro, which gained versus the majority of its most- traded peers after euro-area leaders said they may complete a revised budget rulebook by Jan. 30. The loonie lost 0.7 percent against the greenback last week. “It just looked a bit tired to me,� Steve Butler, managing director at Bank of Nova Scotia’s Scotia Capital unit, wrote in an e-mail message, referring to the rally in the greenback last week. “Lots of stops were cleared out Friday,� he wrote, referring to automatic orders to sell that were triggered by the currency’s decline. Consumer Reading The Nanos Economic Mood Index rose to 107.4 in the fourth quarter from 105.1 the prior three months, according to a report by Nik Nanos, president of the Ottawa-based polling company. About 19 percent of those surveyed said the economy will be stronger during the next six months, up from 16 percent, while the share who said it will be weaker fell to 31 percent from 39 percent. Canadian executives are predicting slower sales growth for the first time in almost three years because of concern about fading global demand, the Bank of Canada said in a quarterly survey. The so-called balance of opinion for sales over the next year was negative 4 percentage points in the fourth quarter, down from plus 6 in the last survey and the first reading below zero since the beginning of 2009, the Business Outlook Survey said. The share of firms predicting slower sales growth rose to 41 percent from 33 percent and those predicting faster sales growth fell to 37 percent from 39 percent in the last survey. The loonie has risen 1.2 percent in the past month, according to Bloomberg Correlation-Weighted Currency Indexes, a gauge of 10 developed-nation currencies. The U.S. currency has advanced 1.9 percent and the euro has fallen 3.3 percent. To contact the reporter on this story: 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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