Bloomberg News

Canada Dollar Hits 11-Month High Versus Euro After Italy Sales

December 30, 2011

Dec. 29 (Bloomberg) -- The Canadian dollar rose to the highest level since January against the euro on speculation the European Central Bank will need to increase cash injections after Italy failed to sell the maximum amount at debt auctions.

The currency, nicknamed the loonie, rose against a majority of its most-traded peers including the U.S. dollar on optimism the American economy is gaining momentum, spurring demand for currencies linked to growth. Stocks advanced as a report showed U.S. jobless claims dropped to a three-year low in the past month.

“Euro-zone issues still being unresolved have driven the ECB to start lowering rates,” said Steve Butler, director of foreign-exchange trading in Toronto at Bank of Nova Scotia’s Scotia Capital unit. “Better data out of the U.S. is starting to bring some optimism back into the U.S. economy. That is certainly good news for us here in Canada.”

The loonie gained 0.3 percent to C$1.3221 against the euro at 5 p.m. Toronto time, after touching C$1.3173, the most since Jan. 18. It rose 0.4 percent C$1.0199 per U.S. dollar. One Canadian dollar buys 98.05 U.S. cents.

The Standard & Poor’s 500 Index increased 1.1 percent. Futures on crude oil, Canada’s biggest export, gained 0.2 percent to $99.79 a barrel in New York.

The loonie rose against the 17-nation currency, which dropped to the weakest in 15 months versus the dollar, as Italy sold 7.02 billion euros ($9.06 billion) of debt due from 2014 to 2022, less than its original target of as much as 8.5 billion euros.

‘Holiday-Thinned Markets’

The ECB said yesterday its balance sheet climbed to a record after it increased lending to banks in the region last week. The yen strengthened against most of its major counterparts as speculation Europe’s debt crisis will worsen spurred demand for safer assets.

Scotia Capital predicted the Canadian dollar will trade at C$1.02 versus the greenback by the end of the first quarter, and trade at C$1.3150 against the euro.

“We are in one of the least liquid times of the year with month-, quarter- and year-end all upon us, and holiday-thinned markets contributing to whippier than normal pricing movements,” Matthew Perrier, Toronto-based director of foreign exchange at Bank of Montreal, wrote in a note to clients today.

“A bullish outside reversal” yesterday has technical indicators moving higher from oversold levels and shifts the focus back to the “topside” for the U.S. dollar versus the Canadian at C$1.0423 to C$1.0441, Perrier wrote.

Government Bonds

Canadian government bonds rose, with the benchmark 10-year yielding 1.94 percent, down one basis point, or 0.01 percentage point. The nation’s 10-year securities yield four basis points more than their equivalent-maturity U.S. peers.

Canada’s government bonds have returned 9.6 percent this year, the most since 2008, according to Bank of America Merrill Lynch data.

Canada’s dollar is little changed this week against the greenback, trailing the yen and Taiwanese dollar among the 16 most-traded currencies. The loonie is poised to lose 0.3 percent this month and 2.3 percent for the year. It’s up 2.8 percent this quarter.

Fewer Americans filed applications for unemployment benefits over the past month than at any time in the past three years, a sign the U.S. labor market is on the mend heading into the new year.

The four-week moving average for claims, a less volatile measure than the weekly figures, dropped to 375,000 last week, the lowest level since June 2008, Labor Department figures showed today in Washington. Applications rose for the first time in a month in the week ended Dec. 24, climbing by a more-than- forecast 15,000 to 381,000.

“Year-end flow certainly looks like more U.S. dollar buying,” said Scotia Capital’s Butler. He predicted the Canadian dollar may weaken to C$1.04. “I expect the euro to find some stability, but I think it can probably head down to $1.20. It’s come a long way and we’re sure to have a few nasty bounces before we get there.”

--Editors: Kenneth Pringle, Paul Cox

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net


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