BLBG:Canada Dollar Strengthens Versus Most Major Peers on U.S. Growth
Canada’s dollar strengthened against most of its major peers as accelerating growth in the U.S. raised optimism about the global economic recovery, boosting demand for riskier assets such as stocks and oil.
Canada’s currency briefly erased gains versus the U.S. dollar after Federal Reserve policy makers raised their assessment of the economy as the labor market gathered strength and refrained from more actions to lower borrowing costs. Canada’s 10-year bond yields widened against their U.S. counterparts to the biggest gap since July.
“The main catalyst has been equities,” said George Davis, chief technical analyst for fixed-income and currency strategy at Royal Bank of Canada’s RBC Capital Markets unit. “This has tended to have the most significant impact on the Canadian dollar. Firmer oil is also helping.”
Canada’s currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, rose 0.4 percent to 98.86 cents per U.S. dollar at 5 p.m. in Toronto. One Canadian dollar buys $1.0115.
The loonie climbed to the highest versus the yen since July after Bank of Japan (8301) Governor Masaaki Shirakawa indicated the central bank will keep its monetary easing policy in place. The Canadian dollar strengthened against 12 of its 16 most-traded counterparts.
Canadian government 10-year bonds yielded 2.05 percent, up seven basis points, or 0.07 percentage point, as the 3.25 percent security dropped 68 cents to C$109.86. The equivalent- maturity U.S. security yielded 2.13 percent.
Stocks Rise
The Standard & Poor’s 500 Index rose 1.8 percent and oil added 0.4 percent.
“The Canadian dollar is quite sensitive to moves in the S&P 500,” said Mark McCormick, a New York-based currency strategist at Brown Brothers Harriman & Co. The currency is “much more sensitive to the S&P than most other drivers.”
The Federal Open Market Committee, which met today in Washington, kept the central bank’s benchmark interest rate target unchanged at zero to 0.25 percent, where it’s been since December 2008. “The unemployment rate has declined notably in recent months, but remains elevated,” the central bank said in a statement.
“The Fed does acknowledge there has been a certain improvement in the backstop of the U.S. economy, especially with respect to improvements in the labor market,” said David Tulk, chief macro strategist at Toronto-Dominion Bank (TD)’s TD Securities unit. “But they stopped well short of sounding too hawkish.”
Economic Reports
Retail sales in the U.S. increased 1.1 percent last month, the most in five months, Commerce Department figures showed today, matching the median estimate of 81 economists in a Bloomberg News survey. That followed data on March 9 that showed U.S. nonfarm payrolls increased by 227,000 in February after rising by a revised 284,000 in the prior month. The unemployment rate held at a three-year low of 8.3 percent.
The Bank of Canada on March 8 kept its main interest rate at 1 percent, extending the longest pause since the 1950s, and said there’s less slack in the economy amid easing global tensions and faster domestic spending that may lift prices. The central bank’s target rate has been at 1 percent since September 2010.
The yield on the September 2012 bankers’ acceptances contract, a barometer of short-term rate projections, rose to 1.33 percent today, the highest since August on a closing basis. The increasing yield reflects the expectations for higher interest rates.
“The Canadian dollar will hold up, given its exposure to the U.S. and the fact that the U.S. data is outperforming,” said Ian Stannard, head of European currency strategy at Morgan Stanley in London. “We’re seeing a lot of positive surprises coming from the U.S. That suggests the Canadian dollar will remain relatively well-supported.”
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
