Bloomberg News

Canadian Dollar Rallies on Central Banks’ Action, Economic Boost

December 01, 2011

Nov. 30 (Bloomberg) -- The Canadian currency rose the most since May 2010 as central banks including the Bank of Canada reduced the cost of emergency dollar funding to ease Europe’s sovereign-debt crisis, buoying riskier assets.

The loonie, as the currency is known, advanced to a two- week high after a report showed Canada’s gross domestic product grew in the third quarter at a faster pace than economists forecast, spurred by the biggest jump in exports since 2004. The nation’s government bonds fell earlier after a private report showed companies in the U.S., Canada’s largest trading partner, added more workers in November than projected.

“All the developments are building upon each other -- you have China’s ratio cut, which was supportive of risk, you had lower swap rates, which was extremely supportive,” said Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York. “You saw big spikes in commodity currencies. With data such as ADP and Canadian GDP a lot better than expected, that’s all good for risk.”

The loonie appreciated 1.4 percent to C$1.0174 per U.S. dollar at 5 p.m. Toronto time. It gained more than 1.9 percent earlier, the biggest advance on an intraday basis since May 27, 2010. It touched C$1.0124, the strongest level since Nov. 14. One Canadian dollar buys 98.29 U.S. cents. Canada’s currency pared its monthly loss to 0.2 percent.

The Canadian dollar closing below C$1.02 per U.S. dollar may signal further strength for the currency, Gain’s Viloria said.

The Bank of Canada joined the Federal Reserve, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank in coordinated action to reduce strains in markets and support the global financial system.

‘From Left Field’

“What they’re doing is insuring that there are enough dollars in the market at a cheap price in case there is another liquidity squeeze and it’s difficult for foreigners to make good on their dollar commitments,” said Kathy Lien, director of currency research at the online foreign-exchange trader GFT Forex in New York. “This risk rally could last a few days because this came from left field and caught everyone by surprise and shows central banks are willing to work together.”

Yields on Canada’s 10-year benchmark bonds increased as much as eight basis points, or 0.08 percentage point, to 2.20 percent before trading up 3 basis points at 2.15 percent. The 3.25 percent securities due in June 2021 slipped 28 cents to C$109.41.

Economy Expands

Gross domestic product grew at a 3.5 percent annualized pace from July to September, compared with a 3 percent gain forecast in a Bloomberg survey. The expansion followed a revised 0.5 percent contraction the prior three months, Statistics Canada said today in Ottawa. U.S. companies added 206,000 workers, ADP Employer Services said today, compared with a prediction of 130,000 in another Bloomberg survey.

Canada’s exports of goods and services rose at a 14.4 percent annualized pace in the third quarter, the fastest since the middle of 2004, rebounding from a 6.4 percent decline in the second quarter.

The Canadian dollar was also supported against most of its major counterparts after China’s central bank said it would lower the reserve requirement for financial institutions.

“It’s supportive of growth, so that helps spur risk appetite,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto, said of China’s first policy-easing since December 2008. “It’s a reflection that the cycle of monetary tightening in China is coming to an end.”

The Standard & Poor’s 500 Index surged 4.3 percent, while the S&P/TSX Composite Index gained 4 percent. Futures on crude oil, Canada’s biggest export, rose 0.6 percent to $100.42 a barrel in New York trading.

Canada’s dollar advanced 1.6 percent over the past month versus nine developed-nation counterparts tracked by Bloomberg Correlation-Weighted Indexes. The U.S. currency rose 1.5 percent, and the euro fell 0.6 percent.

--With assistance from Greg Quinn in Ottawa. Editors: Kenneth Pringle

To contact the reporter on this story: 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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