Bloomberg News

Canada’s Dollar Rises as European Outlook Buoys Riskier Assets

September 29, 2011

Sept. 29 (Bloomberg) -- Canada’s dollar gained as stocks and commodities such as crude oil advanced as optimism European leaders will contain the debt crisis spurred demand for higher- yielding assets.

The loonie, as the currency is also known, was still headed for its first quarterly drop against its U.S. counterpart since the three months ended in June 2010 on concern a deepening global slowdown will reduce demand for raw materials. The Australia and New Zealand dollars, also related to commodities, have fallen since June 30.

“If there’s any gauge that commodity currencies are going to get guidance from, it will certainly be U.S. equities,” said Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG, by phone today from New York. “There’s concern all over the world. In this environment, I’d be more inclined to sell commodity-currency upticks, then buy the downside.”

The Canadian currency appreciated 0.7 percent to C$1.0268 per U.S. dollar at 9:16 a.m. in Toronto, from C$1.0335 yesterday. It touched C$1.0386 on Sept. 26, the weakest level in more than a year. One Canadian dollar buys 97.39 U.S. cents.

Level Time

“It feels early,” to buy the Canadian dollar at current levels, Deutsche Bank’s Ruskin said. “Between C$1.0668 and C$1.08. That seems to me to be very good levels to get in generally.” He said it’s “reasonable” to think the currency may weaken to those levels by year-end.

Canada’s government bonds were little changed. Yield on benchmark 10-year debt rose 1 basis point to 2.21 percent as the price of the 3.25 percent securities fell 10 cents to C$109.04. Yields touched record lows of 1.994 percent on Sept. 23. Canadian government securities have returned 5.4 percent this quarter and 7.2 percent this year, according to Bank of America Merrill Lynch indexes.

Futures on the Standard & Poor’s 500 Index rose 1.4 percent. Futures on crude oil added 1.6 percent to $82.48 a barrel in New York.

Commodity currencies got a boost after German lawmakers approved a strengthening of the euro-area rescue fund, clearing the way for European officials to focus on which next steps may be needed to stem the debt crisis.

The Canadian dollar was headed for a 6 percent drop against the dollar in the third quarter and a 5.2 percent decrease in September.

U.S. Economy

The loonie pared those losses today after a report showed the American economy grew faster than earlier estimated and jobless claims declined.

The U.S. economy expanded at a 1.3 percent pace in the second quarter, and applications for jobless benefits dropped by 37,000 in the week ended Sept. 24 to 391,000, the fewest since April, according to government data.

Canadian factory-product prices unexpectedly rose in August as a weaker dollar boosted the domestic value of exported automobiles, government figures showed. Manufacturers’ raw- material costs fell for a fourth consecutive month.

The industrial product price index rose 0.5 percent in August from July, Ottawa-based Statistics Canada said today. Vehicle and other transportation equipment prices rose 1.7 percent, with the prices received for exports boosted by the currency’s 2.8 percent decline. The industrial-price index would have fallen 0.2 percent excluding the impact of the dollar.

The raw-materials price index fell 3.2 percent as crude oil fell 7.5 percent on concern that global economic growth was slowing, Statistics Canada said.

--With assistance from Greg Quinn in Ottawa. Editors: Paul Cox, Dave Liedtka

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

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


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