Bloomberg News

Canada Dollar Gains From Almost 7-Month Low as Oil, Stocks Rise

September 13, 2011

Sept. 13 (Bloomberg) -- The Canadian dollar rose from almost the weakest level in seven months as risk aversion eased and commodities and stocks gained, improving the outlook for currencies tied to growth.

Canada’s currency climbed versus 15 of its 16 most-traded peers as crude oil, the nation’s biggest export, reached a one- month high. The loonie, as the currency is called, weakened earlier on concern Europe’s debt crisis will erode demand for higher-returning assets. Data tomorrow are forecast to show growth slowed in Canadian industrial companies’ use of their production capacity.

“The risk-off environment is taking a very small break,” said Jose Wynne, head of North America foreign-exchange research at Barclays Capital Inc., by phone from New York. “It’s not that we’re expecting that to continue for much longer. We have a bearish U.S. dollar view, more than a bullish Canadian view.”

The loonie, nicknamed for the image of the aquatic bird on the C$1 coin, gained 0.7 percent to 98.57 cents per U.S. dollar at 5 p.m. in Toronto, after earlier depreciating as much as 0.5 percent to 99.77 cents. The currency closed at 99.27 cents yesterday, when it reached C$1.0027, the weakest level since Jan. 31. One Canadian dollar buys $1.01456.

Canada’s dollar, which fell last month for the first time since May on concern the global economy is headed for another recession, rose today as the Thomson Reuters/Jefferies CRB Index of raw materials gained 0.5 percent in its first increase in three days.

Crude oil for October delivery climbed as much as 2.6 percent to $90.52 a barrel in New York, the highest level since Aug. 4, before trading at $89.79. Raw materials including oil account for about half of Canada’s export revenue.

Contagion Risk

Canada’s currency reached the weakest level since January yesterday against the greenback, which touched the strongest since February versus the euro on speculation that a Greek default will lead to a spiraling sovereign-debt crisis and spread to banks. The euro was little changed today at $1.3678 and dropped 0.7 percent to C$1.3483.

“Greece has a serious risk of imminent default and the market is questioning what level of catastrophe that will entail,” Jack Spitz, managing director of foreign exchange at National Bank of Canada, said by phone today from Toronto. “The global backdrop is influencing the flow in all currencies, Canada included.”

The Standard & Poor’s 500 Index gained as much as 1.2 percent before trimming the gain to 0.9 percent after a report that German Finance Minister Wolfgang Schaeuble said Greece should not get any additional aid beyond what has already been agreed upon. Canada’s S&P/TSX Composite Index was up 0.5 percent after increasing 0.8 percent earlier.

Bonds Drop

Canada’s government bonds fell for a second day, pushing benchmark 10-year yields up six basis points, or 0.06 percentage point, to 2.20 percent. The yields dropped to 2.089 percent yesterday, the lowest since at least June 1989. The price of the 3.25 percent securities due in June 2021 dropped 55 cents to C$109.15.

The loonie erased losses after German Chancellor Angela Merkel said she’s confident the euro’s stability can be secured, and French banks advanced after dismissing concern about their access to funding.

Merkel, in a German radio interview broadcast today, warned against allowing a Greek default because of the risk of contagion for other euro-area countries. She said an “uncontrolled insolvency” would further roil markets.

Gained for Week

The loonie gained 3.2 percent over the past week against nine other developed-nation currencies traded by Bloomberg Correlation-Weighted Currency Indexes. The greenback rose 3.1 percent. The U.S. is Canada’s biggest trade partner.

Canadian industrial companies’ use of their production capacity slipped in the second quarter to 78 percent, from 79 percent in the previous three-month period, according to the median of 13 estimates compiled by Bloomberg News. Statistics Canada releases the data tomorrow in Ottawa.

Toronto-Dominion Bank, Canada’s second-largest lender, lowered its forecast for the nation’s economic growth this year and next to reflect a U.S. economy that had a deeper recession than previously reported, Craig Alexander, chief economist at the firm, said by phone today from Toronto.

TD cut its growth forecast to 2.2 percent this year, from 2.8 percent. It reduced the forecast for next year to 1.9 percent, from 2.5 percent, and raised the 2013 outlook to 2.6 percent, from 2.1 percent.

“The downgrade to Canadian growth this year and next is largely based on a downgrade to the external environment in which the Canadian economy is operating,” Alexander said.

--Editors: Greg Storey, Dennis Fitzgerald

To contact the reporters on this story: Chris Fournier in Halifax, Nova Scotia at cfournier3@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net

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


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