Bloomberg News

Canada’s Dollar Advances for Second Day on Gains in Stocks, Oil

June 28, 2011

June 28 (Bloomberg) -- Canada’s dollar rose for a second day versus its U.S. counterpart, reversing a drop, after global stocks and raw materials including crude oil rose on speculation Greece will adopt an austerity package to avoid default.

The gain trimmed the currency’s loss for June to 1.5 percent in what would be the second straight monthly decrease. The greenback fell against all but three of its 16 most-traded counterparts today, the Swedish krona, the yen and sterling amid demand for higher-yielding assets. The Canadian dollar touched a 12-year low versus the Swiss franc.

“I still don’t see the reason yet to get all bearish about the global economy,” David Watt, senior currency strategist at the RBC Capital Markets unit of Royal Bank of Canada, the nation’s biggest bank, said by phone from Toronto. “We haven’t changed our forecast” for the Canadian currency, which is 94 cents per U.S. dollar by the end of the third quarter, he said.

The Canadian dollar appreciated 0.3 percent to 98.32 cents per U.S. dollar at 2:12 p.m. in Toronto, compared with 98.61 cents yesterday and 96.85 cents at the end of May. It slipped yesterday to 99.13 cents, the lowest level since March 17. One Canadian dollar purchases $1.0171.

The franc reached 84.12 centimes per Canadian dollar, the strongest since October 1998, before trading at 84.62.

The euro gained against most of its major peers on speculation Greece’s parliament will approve a package of budget cuts and asset sales required to ensure more financial aid.

Crude Climbs

Crude oil for August delivery rose 2.2 percent to $92.56 a barrel in New York, and the Thomson Reuters/Jefferies CRB Index of raw materials increased for the first time in five days, gaining 1.6 percent. Raw materials account for half of Canada’s export revenue, and crude is the nation’s biggest export.

The Standard & Poor’s 500 Index rose 1 percent in a second daily advance.

Greek lawmakers vote tomorrow on the austerity plan and vote later on a measure implementing it. Germany’s biggest banks and insurers will meet with the Finance Ministry in Berlin tomorrow as they seek to reach an agreement on their role in a Greek aid package, according to two people with knowledge of the matter.

Switzerland’s currency is “attractive in this environment” for inter-European diversification and because of the nation’s relatively sound fiscal and debt positions, according to Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto.

‘Scrambling’ for Franc

“Everyone has been scrambling to get long the Swiss franc against anything and everything,” Sutton said via e-mail. “The Canadian dollar has turned into a solid, low-beta currency, making the cross a relatively safe way to get Swiss franc exposure.” A long position is a bet a currency will appreciate. A low-beta currency is one that’s relatively insulated from fluctuations in market volatility.

Government bonds tumbled, pushing the yield on Canada’s benchmark 10-year note up 10 basis points, or 0.1 percentage point, to 3.01 percent. It fell to as low as 2.84 percent yesterday, the least since November. The 3.25 percent security due in June 2021 slid 93 cents to C$102.04.

Canada’s dollar is the second-worst performer after the Swedish krona this quarter among the 16 most-traded currencies. Crude oil futures, which touched $114.83 a barrel in New York in May, dropped yesterday to a four-month low of $89.61.

“Weaker oil levels, while a hit on the Canadian dollar, also ensure a recovery in U.S. consumption and will therefore be a boon down the road,” said Sebastien Galy, a senior foreign- exchange strategist at Societe Generale SA in London.

Canada ships about three quarters of its exports to the U.S.

--Editors: Greg Storey, Dennis Fitzgerald

To contact the reporter on this story: Chris Fournier in Halifax at cfournier3@bloomberg.net

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


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