Bloomberg News

Canadian Dollar Gains as China’s Growth Reduces Risk Aversion

July 13, 2011

July 13 (Bloomberg) -- Canada’s dollar advanced as stronger-than-forecast Chinese growth renewed demand for higher- yielding assets and oil advanced.

The loonie, as Canada’s currency is also known for the waterfowl on the C$1 coin, extended its gain against the U.S. dollar after Federal Reserve Chairman Ben S. Bernanke said U.S. policy makers will provide stimulus if needed. Canada’s dollar climbed along with other commodity-linked currencies such as the Australian and New Zealand dollars on speculation China’s demand for natural resources will spur growth.

“One of the themes we have seen has been a rebound in risk appetite and the Chinese data went a long way to create that backdrop,” said George Davis, chief technical analyst for fixed income and currency strategy in Toronto at Royal Bank of Canada. “The GDP number certainly had a positive impact on the currency.”

The loonie advanced 0.9 percent to 95.82 cents per U.S. dollar at 5 p.m. in Toronto. It closed at 96.66 cents yesterday. One Canadian dollar buys $1.0436.

Canada’s dollar slipped 0.5 percent against the euro. The 17-nation currency rose against a majority of its most-traded counterparts as Italian bonds rallied for a second day, easing concern that the region’s debt crisis may spread beyond Greece, Ireland and Portugal to larger economies.

The New Zealand and Australian dollars were among the top performers. Raw materials, including crude oil and copper, account for half of Canada’s export revenue.

Chinese Growth

“There’s no denying there are many structural problems within the euro zone, but there’s a grudging acknowledgment that some sort of soft restructuring or even harder restructuring is going to be applied to Greece in the coming weeks, and they’re just inching toward a structural solution,” Geoffrey Yu, a currency strategist at UBS AG, said by telephone from London. “That’s positive at least.”

Copper rose for a second day in London after economic growth topped estimates in China, the world’s largest consumer of the metal. Gross domestic product climbed 9.5 percent from a year earlier in the second quarter, the statistics bureau said today, exceeding the 9.3 percent median estimate of 18 economists surveyed by Bloomberg News.

Bernanke, in a testimony before the House Financial Services Committee, said the central bank is prepared to take additional action, including buying more government bonds, if the U.S. economy appears to be in danger of stalling. The U.S. is Canada’s largest trading partner.

Government Bonds

The Fed has kept its benchmark interest rate at a record low of zero to 0.25 percent since December 2008. During that time, the Bank of Canada has raised interest rate three times, to 1 percent. The disparity in the rates spurs investors seeking higher yields to buy Canadian assets instead of those denominated in dollars.

Canada’s government bonds fell, pushing the 10-year yield higher by four basis points to 2.93 percent, as the price of the 3.25 percent security due in June 2021 dropped 31 cents to C$102.73. A basis point is 0.01 percentage point.

The nation’s sovereign securities have returned 1.2 percent this month and are up 3 percent in 2011, according to the Bank of America Merrill Lynch Canadian Governments index.

Canada’s dollar has weakened 1.3 percent this year versus the currencies of nine other developed nations, according to Bloomberg Correlation-Weighted Currency Indexes.

--Editors: Greg Storey, Dave Liedtka

To contact the reporters on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net; Catarina Saraiva in New York at asaraiva5@bloomberg.net

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


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