Bloomberg News

Canadian Dollar Gains as U.S. Trade Gap Narrows, Oil Rises

June 09, 2011

June 9 (Bloomberg) -- The Canadian dollar gained against the greenback as a narrowing April trade deficit in the U.S., the nation’s largest trading partner, overshadowed Canada’s unexpected trade gap.

The loonie, as the currency is nicknamed, gained against 15 of its 16 most-traded counterparts as crude oil, Canada’s biggest export, and stocks rose. The Canadian currency strengthened versus the euro after the European Central Bank signaled a July rate increase while damping investor expectations for further moves by reiterating a forecast that inflation will fall below its 2 percent limit next year.

“The merchandise trade number was overshadowed by the U.S. as well as comments by Trichet,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “As always, as the adage goes, good U.S. economic data has a positive influence for Canada on the crosses.”

The Canadian currency gained 0.6 percent to 97.30 cents per U.S. dollar at 5 p.m. in Toronto, from 97.93 yesterday. It earlier touched 98.13 cents. One Canadian dollar buys $1.0278.

Crude oil for July delivery climbed 1.1 percent to $101.87 a barrel in New York after touching $102.44, its highest price since June 1. The Standard & Poor’s 500 Index climbed 0.7 percent, ending six consecutive days of losses.

Trade Impact

The loonie rose after U.S. trade deficit unexpectedly narrowed in April, reflecting a plunge in auto and oil imports combined with record exports. The gap shrank 6.7 percent to $43.7 billion, the lowest since December, according to Commerce Department figures today in Washington. Economists forecast a $48.8 billion gap, the median from a Bloomberg News survey.

Canada’s trade deficit was C$924 million ($945 million) in April, the widest in six months, Ottawa-based Statistics Canada said today. Economists forecast a C$600 million surplus, the median estimate in a Bloomberg survey of 24 economists. The March trade balance was revised to show a C$417 million deficit instead of an earlier estimated C$627 million surplus.

“Overall, it does not change much to the U.S.-dollar- Canada-dollar picture and is just another negative surprise that we have had recently,” said Sebastien Galy, a senior foreign- exchange strategist at Societe Generale SA in London. “The impact of such surprises is decreasingly important as the impact of the Japanese catastrophe is priced in as is increasingly the potential for the current economic slowdown.”

Bonds Fall

Government bonds dropped, pushing the yield for the 10-year benchmark note up three basis points, or 0.03 percentage point, to 3.03 percent. The 3.25 percent security that expires in June 2021 fell 27 cents to C$101.85.

The Canadian new home price index rose 0.3 percent in April, Statistics Canada said today in a separate report. That compared with an estimated increase of 0.1 percent, according to the median economists’ forecast from a Bloomberg News survey. The index was unchanged in March. From a year earlier, new home prices gained 1.9 percent, the report showed.

The loonie strengthened 1.2 percent to C$1.4118 per euro from C$1.4284 yesterday, as the ECB left its main refinancing rate at 1.25 percent, matching expectations from all 52 economists surveyed by Bloomberg News.

The ECB raised borrowing costs in April for the first time in almost three years, and economists surveyed before today expected it to take the benchmark rate to 1.75 percent, the median estimate in a Bloomberg News survey, in October. ECB President Jean-Claude Trichet said the central bank hadn’t raised next year’s inflation forecast from 1.7 percent, fueling speculation it won’t increase rates as quickly as previously expected.

Classic Pattern

“When it comes to euro-Canadian dollar, the market is in a classic buy the rumor sell the news price action after Trichet’s comments,” said Kathy Lien, director of foreign-exchange research at online currency trader GFT Forex in New York. “The ECB is the only central bank raising interest rates right now, and that should keep euro-Canadian dollar supported. It shouldn’t see any deeper losses beyond 1.41.”

A Statistics Canada report tomorrow may show Canadian employers added 20,000 jobs to payrolls in May, the median forecast from a Bloomberg News survey of economists. The unemployment rate in Canada may have stayed at 7.6 percent. Employers added 58,300 jobs in April.

“That’s going to be a very important piece of data to watch,” Lien said. Based on the more-than-projected increase in the Ivey purchasing managers index on June 6, “the labor market has improved, manufacturers added jobs at a faster pace. There could be some position adjustments in the Canadian dollar ahead of the employment report with some traders buying the CAD anticipating a stronger number tomorrow,” she said.

The Ivey purchasing managers index in May increased to 65.5 on a seasonally adjusted basis, a statement on the University of Western Ontario business school’s website showed on June 6. Readings of more than 50 signal purchasing by governments and companies advanced.

--With assistance from Allison Bennett in New York. Editors: Paul Cox, Dennis Fitzgerald

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

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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