Bloomberg News

Canada Dollar Gains 1st Time in 3 Days as Investors Seek Yield

June 07, 2011

June 7 (Bloomberg) -- Canada’s dollar advanced against its U.S. counterpart for the first time in three days as investors sought higher-yielding assets.

The Canadian currency retreated from its high of the day as Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank should maintain record monetary stimulus to boost a “frustratingly slow” economic recovery. The greenback fell against most major peers as increased risk appetite damped demand for refuge currencies.

“The U.S. dollar has been sold off in general across the board, and that has helped dollar-Canada,” said Matt Perrier, director of currency sales at Bank of Montreal’s BMO Capital Markets unit in Toronto.

Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, strengthened 0.7 percent to 97.45 cents per U.S. dollar at 5 p.m. in Toronto, from 98.09 cents yesterday. It weakened to 98.52 cents on June 3, the least since March 21. One Canadian dollar buys $1.0262.

The loonie reached its strongest level of the day, 97.32 cents, before trimming gains as Bernanke told bankers at a conference in Atlanta that until the U.S. sees “a sustained period of stronger job creation, we cannot consider the recovery to be truly established.”

Canada ships about 75 percent of its exports to the U.S.

The loonie capped its fifth weekly loss on June 3 after U.S. Labor Department data showed American payrolls grew at the slowest pace in eight months, increasing by 54,000 jobs in May. That was less than a third the 165,000-position gain that economists forecast in a Bloomberg survey.

Bonds Fall

Canadian government bonds fell today, pushing the yield on the benchmark 10-year note up four basis points to 3.03 percent. A basis point is 0.01 percentage point. The price of the 3.25 percent security maturing in June 2021 dropped 33 cents to C$101.89. Government debt has returned 2 percent this year after gaining 6.2 percent in 2010, according to a Bank of America Merrill Lynch index.

The loonie rose after Finance Minister Jim Flaherty said yesterday he’ll seek to bring the federal government back into surplus by 2014 through cuts in government operating costs and the elimination of tax loopholes. Flaherty, whose Conservative Party won a majority in last month’s election, presented a fiscal plan similar to one he proposed in March.

“It was a fairly well received budget, and that also may be helping the Canadian dollar bounce a little bit higher here today, too,” said John Kurgan, a Toronto-based senior market strategist at Lind-Waldock & Co., a unit of MF Global Canada.

Canadian Jobs

Employers added a net 20,000 jobs to payrolls in May after a 58,300 gain in April, and the unemployment rate remained at 7.6 percent, Statistics Canada will probably say on June 10, according to the median forecast of economists surveyed by Bloomberg News.

“We’re going to be watching that for some sort of sign in terms of the strength of the Canadian economy,” Kurgan said.

Canada’s currency strengthened today against 10 of its 16 most-traded counterparts. It rose the most against the South Korean won, gaining 1 percent.

The loonie fell 0.2 percent versus the euro to C$1.4320 after yesterday reaching the weakest level in 15 months versus the shared currency, C$1.4371.

“The Canadian dollar was cheap, and poised for a bit of a bounce,” said David Watt, senior currency strategist at Royal Bank of Canada’s RBC Capital Markets unit in Toronto.

The Standard & Poor’s 500 Index advanced as much as 0.8 percent before erasing the gain as Bernanke spoke. It ended the day down 0.1 percent. Crude oil, Canada’s biggest export, fluctuated after reaching a two-week low. Crude for July delivery fell to as low as $97.74 a barrel in New York, the least since May 24, before trading at $99.71, up 0.7 percent.

--Editors: Greg Storey, Paul Cox

To contact the reporters on this story: Cecile Vannucci in New York at cvannucci1@bloomberg.net; 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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