Bloomberg News

Canada’s Dollar Gains to One-Week High After ECB Liquidity Plan

September 15, 2011

Sept. 15 (Bloomberg) -- The Canadian currency reached a one-week high versus the greenback after the European Central Bank said it will lend euro-area banks U.S. dollars, spurring bets that the region’s debt crisis may be contained.

The euro gained against the Canadian currency for a second day and rose versus most major peers after the ECB said it will coordinate with the Federal Reserve and other central banks to ensure euro-region banks have enough of the U.S. currency through the end of the year. Canada’s government bonds fell, pushing 10-year yields up the most in a month.

“Euro-zone banks have been an ongoing concern for the market, so the fact that there is coordination between the ECB and the Fed to lend dollars to the banks provides some solace to the market,” said Shane Enright, technical currencies analyst at Canadian Imperial Bank of Commerce’s CIBC World Markets unit in Toronto. “There does seem to be a willingness to do what it takes.”

The Canadian currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, appreciated 0.6 percent to 98.36 cents per U.S. dollar at 5 p.m. in Toronto, compared with 98.93 cents yesterday. It touched 98.31 cents, the strongest level since Sept. 8. One Canadian dollar buys $1.0167.

Europe’s 17-nation currency traded at C$1.3650, up 0.3 percent, after rising earlier as much as 0.8 percent to C$1.3715, the highest level since Sept. 9.

Trading in Range

“Markets are hesitant,” Camilla Sutton, chief currency strategist at Bank of Nova Scotia’s Scotia Capital unit in Toronto, said in a telephone interview. “The Canadian dollar is just trading within its broader range and can’t really seem to break out on either side.”

The loonie has traded since Sept. 5 against the U.S. currency between 98.30 cents and C$1.0027, the weakest level since January.

The Standard & Poor’s 500 Index climbed 1.7 percent, while Canada’s benchmark S&P/TSX Composite Index advanced 1.1 percent. Crude oil, Canada’s biggest export, gained. October futures rose as much as 1.4 percent to $90.15 a barrel in New York before trading at $88.40, up 0.6 percent.

Government bonds dropped, sending yields on Canada’s benchmark 10-year notes as much as 11 basis points higher, or 0.11 percentage point, to 2.31 percent. It was the biggest intraday jump since Aug. 11. The price of the 3.25 percent notes due in June 2021 fell 87 cents to C$108.28.

Factory Sales Rise

The loonie also gained versus the U.S. dollar after Statistics Canada data showed manufacturing sales rose in July more than forecast as energy and metal production rebounded after plant shutdowns. Sales increased 2.7 percent on a seasonally adjusted basis to C$46.7 billion ($47.3 billion), the report showed. A Bloomberg News survey of 21 economists projected a 1.4 percent gain.

“Finally, the manufacturing sector catches a break,” Mazen Issa, Canada macro strategist at Toronto-Dominion Bank’s TD Securities unit, said in a note to clients. The report “diminishes the risk of a recession in Canada and bodes well for the industry level real gross domestic product figure” for July and the third quarter, he said.

Canada will have modest growth in the second half of the year after output shrank from April to June, Finance Minister Jim Flaherty said yesterday.

Volatility in the Canadian dollar versus its U.S. counterpart fell. One-month implied volatility on the currency pair dropped to 10.4 percent today, from 11.6 percent on Sept. 12, which was the highest level since Aug. 15. Implied volatility, which traders quote and use to set option prices, signals the expected pace of swings in the underlying currency.

The loonie advanced 1.1 percent over the past week against nine other developed-nation currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The U.S. dollar declined 0.4 percent, while the Australian dollar fell 1.9 percent. The U.S. is Canada’s biggest trade partner, and Australia, like Canada, is an exporter of raw materials.

--Editors: Greg Storey, Paul Cox

To contact the reporter on this story: Frederic Tomesco in Montreal at

To contact the editor responsible for this story: Dave Liedtka at

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