Bloomberg News

Canada Dollar Rises on G-20, Gains in Manufacturing, U.S. Retail

October 14, 2011

Oct. 14 (Bloomberg) -- Canada’s dollar rose along with equities and government bond yields as optimism that a meeting of Group of 20 finance ministers will progress toward resolving Europe’s debt crisis boosted demand for higher-yielding assets.

The Canadian currency extended gains against the greenback after government reports showed factory sales reached the highest in almost three years in August and U.S. retail sales rose more than forecast in September. It traded at the strongest in three weeks against the greenback and is up 2.9 percent this week, tracking equities.

“It’ much more of a risk-positive week,” said Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc., a unit of Canada’s second-largest bank, in a telephone interview. “Commodities have rallied, equities have rallied, volatility has dropped back. All of those things are going to be good for the Canadian dollar. It remains to be seen how long this can last.”

The Canadian currency strengthened 1.1 percent to C$1.0098 per U.S. dollar at 5 p.m. in Toronto, touching the most since Sept. 22. One Canadian dollar buys 99.03 U.S. cents.

The MSCI World Index, a gauge of developed nations’ stocks, rose 1.5 percent. Futures on crude oil, Canada’s biggest export, advanced 3.2 percent to $87.28 a barrel in New York.

Euro Bet

Investors should sell the euro against the Canadian dollar, betting the 17-nation currency will weaken to C$1.3660, Standard Bank Plc said. The bank recommended entering a short position on the euro at C$1.4030 with an initial target of C$1.3850, Steven Barrow, head of Group of 10 currency strategy in London at South Africa’s largest bank, wrote today in a note to clients.

Abandon the trade if the euro strengthens to C$1.4380, he wrote. A short position is a bet an asset will decline.

“Markets feel a lot calmer than they felt even a week ago,” said Camilla Sutton, chief currency strategist at Bank of Nova Scotia’s Scotia Capital in Toronto, in a telephone interview. “We’ve turned all the forecasts extremely pessimistic on the outlook for the U.S. Economy and now we’re having upside surprises, which is also helping risk sentiment generally.”

Canada’s 30-year government bonds rose eight basis points to 2.97 percent, the highest close in more than a month. The nation’s bond market is having its worst month in almost two years, trailing global peers, as demand shifts to higher- yielding assets such as stocks on optimism a worldwide liquidity crisis will be averted.

Canadian bonds lost 1.1 percent this month, the most since December 2009, according to the Bank of America Merrill Lynch broad Canada index, which tracks 1,182 bonds with a par value of C$1.1 trillion ($1.08 trillion). Bank of America Merrill Lynch’s broad global index fell 0.5 percent this month to Oct. 13.

Bond Sale

Canada will sell C$3.5 billion of two-year bonds on Oct. 19, according to a statement on the central bank’s website. The previous auction of two year bonds, on Sept. 14, fetched an average yield of 1.03 percent and a bid to coverage ratio of 2.53 times, Bank of Canada data show.

The nation’s factory sales rose 1.4 percent on a seasonally adjusted basis to C$47.6 billion ($46.8 billion), the highest level since October 2008, Statistics Canada said today in Ottawa. The increase exceeded all 21 estimates in a Bloomberg survey of economists that had a median estimate of a 0.5 percent gain.

U.S. retail sales gained 1.1 percent, the biggest advance since February, and followed a 0.3 percent gain for August, a stronger performance than previously estimated, Commerce Department figures showed today in Washington. The median forecast of 85 economists surveyed by Bloomberg News called for a 0.7 percent rise in purchases last month.

Inflation Watch

Canada’s consumer prices rose an annualized 3 percent last month from a year earlier, according to the median of 12 economist forecasts compiled by Bloomberg. Statistics Canada is due to release the data on Oct. 21 at 7 a.m.

As hopes for a European rescue package rise, traders are trimming bets that the Bank of Canada policy makers will lower interest rates when they meet on Dec. 6. Odds of a rate cut fell to 32 percent yesterday, from 72 percent last week, according to Bloomberg calculations based on overnight index swaps.

Group of 20 finance ministers began a two-day meeting today to discuss plans to tackle Europe’s debt crisis. European leaders may complete the rescue plan at an Oct. 23 summit to present to a meeting of G-20 leaders on Nov. 3-4. The aim is to put together what the French and German governments call a “durable” fix to the turmoil that has propelled Greece to the edge of default and is roiling global markets.

“G-20 optimism” is boosting the Canadian dollar, Firas Askari, head of currency trading in Toronto at Bank of Montreal’s BMO Capital Markets unit, said by e-mail. “Risk is on and the Canadian dollar does well.”

The loonie has dropped 4.1 percent this year, the worst performance in a gauge of 10 developed-nation currencies, according to Bloomberg Correlation-Weighted Currency Indexes. The greenback is down 2.8 percent. The yen is up 2.7 percent.

--With assistance from Catarina Saraiva in New York. Editors: Paul Cox, Dennis Fitzgerald

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: Robert Burgess at bburgess@bloomberg.net


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