Bloomberg News

Canada’s Dollar Strengthens on Optimism About European Debt Pact

October 20, 2011

Oct. 20 (Bloomberg) -- Canada’s dollar strengthened against its U.S. counterpart on optimism that European leaders will be able to solve the region’s debt crisis next week.

German Chancellor Angela Merkel and French President Nicolas Sarkozy agreed to ask euro-region leaders to assess a “comprehensive and ambitious” package of measures to solve the region’s debt crisis at a leaders’ summit on Oct. 23 in order to agree on the measures at a second meeting by Oct. 26 at the latest. Crude oil, the nation’s largest export, pared declines amid improved sentiment for risker assets.

“Europe is the big play at the moment and everyone is focusing on that,” said Darcy Browne, managing director of capital markets trading at Canadian Imperial Bank of Commerce in Toronto. “Everything is comment-driven these days. These aren’t fundamental reasons. I don’t think anyone is strapping on any new risk here.”

Canada’s currency rose 0.5 percent to C$1.0154 per U.S. dollar by 5 p.m. in Toronto, after falling as much as 0.4 percent. One Canadian dollar buys 98.48 U.S. cents.

European governments may earmark as much as 940 billion euros ($1.3 trillion) to fight the debt crisis by combining the temporary and planned permanent rescue funds, two people familiar with the discussions told Bloomberg News today.

The loonie, as the currency is nicknamed, declined earlier after Merkel canceled a planned speech to parliament in Berlin tomorrow because of a deadlock about proposals to leverage the European Financial Stability Facility to give it more firepower.

Currency Flows

“We’ve been stuck in a range this week,” said Francois Belanger, director of foreign-exchange sales at Bank of Montreal’s BMO Capital Markets unit in Montreal. “Flows into the loonie have slowed down considerably. There’s still pretty good support for the U.S. dollar.”

The Standard & Poor’s 500 Index gained 0.5 percent, while Canada’s benchmark Standard & Poor’s/TSX Composite Index declined 0.2 percent. Futures on crude oil fell 0.9 percent to $85.30 a barrel in New York trading after losing as much as 2.3 percent.

The yield on 10-year Government of Canada bonds fell two basis points, or 0.02 percentage point, to 2.31 percent. The price of the 3.25 percent securities maturing in June 2021 rose 18 cents to C$108.05.

Wholesale sales rose 0.2 percent in August to C$48.4 billion ($47.5 billion), Ottawa-based Statistics Canada said. Economists surveyed by Bloomberg News forecast a 0.5 percent increase, the median of 15 estimates.

The gain reflected higher prices for imported goods. Excluding the impact of prices, wholesalers recorded their biggest decline since May 2010.

Economic data reports are “overwhelmed by the momentum and influence that’s created by these headline bombs that keep hitting the market on a daily basis,” said Jack Spitz, managing director of foreign exchange at National Bank’s Spitz. “There’s tremendous sensitivity because it’s unprecedented event risk.”

The loonie has weakened 1.9 percent in the past month, according to Bloomberg Correlation-Weighted Currency Indexes, a gauge of 10 developed-nation currencies. The greenback has lost 1 percent of its value.

--Editor: Paul Cox, Dave Liedtka

To contact the reporters for this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net; 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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