Bloomberg News

Canadian Dollar May Rise to Two-Month High Against Yen, RBS Says

January 06, 2012

Jan. 5 (Bloomberg) -- Investors should buy the Canadian dollar against yen as the U.S. economy improves and the outlook for Japan dims, according to Royal Bank of Scotland Group Plc.

The Canadian currency, also known as the loonie, may strengthen to 79.5 yen within three months, according to Robert Sinche, global head of foreign-exchange strategy at RBS in Stamford, Connecticut. The last time the Canadian dollar traded at that level was on Oct. 31.

“We think the Canadian dollar has some good upside, particularly versus the yen,” Sinche said in a telephone interview. He recommends buying the loonie at 75.75 yen and selling if there is a two-day close below 74.55 yen.

The Canadian dollar was little changed at 75.74 yen at 3:31 p.m. in Toronto. It touched 74.73 yen on Jan. 2, the lowest level since Nov. 28.

A break of the 100-day moving average, currently at 76.09 yen, and “well-established trend-line resistance” at 76.39 may occur in the weeks ahead, setting the stage for a test of the 200-day moving average at 79.67, Sinche wrote in a research note to clients today. Resistance refers to the upper boundary of a trading range, where orders to sell a currency may be clustered.

The Canadian dollar may get some support from rising interest-rate expectations if economic data improve, while the Bank of Japan is on “perma-hold,” Sinche said in the phone interview.

Fair-Value Model

The firm’s fair-value model, which takes into account the five-year bond yield difference, oil prices and the Standard & Poor’s 500 Index, also indicates the Canadian dollar has room to rise against the yen.

The 12-month average of Japan’s trade balance is at its lowest level since at least 1993, and the current-account surplus is moderating, weakening the outlook for the yen, according to Sinche. The upside for the currency is “extremely limited, if any exists at all,” he wrote.

U.S. economic growth momentum bodes well for Canadian exports and provides a “positive backdrop” for the Canadian dollar, Sinche wrote.

--Editors: Dennis Fitzgerald, Greg Storey

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

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


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