BLBG: Canadian Dollar Climbs Against U.S. Counterpart on Risk Appetite
Canada’s dollar advanced against its U.S. counterpart for a second day after comments from the leaders of Germany and the Federal Reserve stoked demand for higher-yielding assets, such as stocks and commodities.
The currency rose against a majority of its most-traded peers on speculation the nation’s exports may benefit from growth in the U.S., as economists predicted a report this week will show orders for American durable goods rose in February. Crude, Canada’s largest export, topped $107 barrel in New York.
“The Canadian dollar is one of the oil currencies, very tightly tied to developments in oil prices,” said Henrik Gullberg, a currency strategist at Deutsche Bank AG, by phone from London. “If you just look at Group of 10 currencies, the fact the oil is still elevated and the U.S. economy is leading the rest of the world, I think that should benefit Canada because of the close trading links with the U.S.”
Canada’s currency, nicknamed the loonie, was up 0.6 percent to 99.13 cents per U.S. dollar at 10:19 a.m. in Toronto. One Canadian dollar buys $1.0087.
Government bonds fell, with the yield on the benchmark two- year security rising one basis point, or 0.01 percentage point, to 1.25 percent. The spread between Canadian and U.S. two-year debt widened to about 90 basis points, with the American benchmark yielding 0.35 percent.
The loonie rose after Chancellor Angela Merkel said Germany may back plans for the temporary and permanent euro-area rescue funds to run in parallel.
“We could imagine that the program that has already been agreed with 200 billion” euros ($266 billion) could run in parallel with the permanent European Stability Mechanism, which comes into force in July, Merkel told reporters in Berlin today.
Bernanke’s View
Canada’s currency extended gains after Fed Chairman Ben S. Bernanke said accommodative monetary policy is still needed to reduce U.S. unemployment.
The loonie’s 1.7 percent gain is the best performance over the past month among 10 major currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The pound and the greenback, with gains of 1.6 percent and 1.1 percent are the index’s second- and third-best.
“We’re sure to see some interest develop in the Canadian dollar develop throughout the week,” Jack Spitz, managing director of foreign exchange at National Bank of Canada (NA) in Toronto, wrote in a note to clients today, citing tomorrow’s Ontario budget and the March 29 federal budget. “A more constrictive budget than expected could see rate-hike expectations get pushed out further.”
Oil Correlation
The Standard & Poor’s 500 Index rose 0.9 percent. Crude oil for May delivery rose 37 cents, or 0.3 percent, to $107.24 a barrel at 9:37 a.m. on the New York Mercantile Exchange. Futures dropped as low as $106.19 before the Bernanke speech. Prices are up 8.5 percent this year.
The correlation between the loonie and crude futures has been increasing, with the correlation coefficient at 0.50 today, up from 0.30 last month. A correlation coefficient of 1 means the measures move in lockstep. The currency’s correlation with the S&P 500 was 0.75 today, compared with 0.58 for copper and 0.46 for the U.S.-Canada two-year yield spread, 30-day correlation data show.
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
