Bloomberg News

Canadian Dollar Rises From Lowest This Month on Risk Appetite

February 17, 2012

Feb. 16 (Bloomberg) -- Canada’s dollar climbed from a February low as risk appetite swelled on data showing improvement in the U.S. economy and bets Greece will receive a rescue package to avoid a default.

The currency erased losses after jobless-benefit claims in the U.S., Canada’s biggest trade partner, unexpectedly slid to a four-year low. It strengthened as stocks and commodities advanced. Three euro-area officials said the European Central Bank is swapping its Greek bonds for new ones, paving the way for a private-sector swap that cuts Greece’s debt.

“The Canadian dollar moved higher after we saw a bit of change in risk sentiment based on the positive jobless-claims data,” said Rahim Madhavji, president and head trader at Knightsbridge Foreign Exchange in Toronto. “The main issue in the U.S. continues to be unemployment, and what’s good for the U.S. is good for Canada.”

Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, gained 0.3 percent to 99.66 cents per U.S. dollar at 5 p.m. in Toronto. It depreciated 0.5 percent earlier to C$1.0052, the weakest level since Jan. 31. One Canadian dollar buys $1.0034.

Implied volatility for one-month options on the Canadian dollar versus the greenback jumped to the highest level in almost two weeks. It reached 8.61 percent, the most since Feb. 2, before trading at 8.13 percent, approaching the 10-month low of 7.66 percent reached on Feb. 10. Implied volatility, which traders quote and use to set option prices, signals the expected pace of swings in the underlying currency. It averaged 10 percent over the past year.

Stock Correlation

The Standard & Poor’s 500 Index increased 1.1 percent after slipping 0.2 percent earlier. The loonie tends to rise and fall with stocks. It has a 60-day correlation coefficient of 0.83 with the S&P 500. A reading of 1 would indicate they move in lockstep.

Crude oil, Canada’s biggest export, advanced, with March futures increasing 0.5 percent to $102.34 a barrel in New York. They touched $102.69, a five-week high, after dropping 1 percent earlier to $100.84.

The loonie weakened versus the euro for the first time this week on speculation European governments are considering cutting interest rates on emergency loans to Greece. It slipped 0.2 percent to C$1.3087 after appreciating 0.3 percent earlier.

The ECB is exchanging its Greek bonds to ensure it isn’t forced to take losses in a debt restructuring, the three euro- area officials said on condition of anonymity. An ECB spokesman declined to comment. The move may be completed by Feb. 20, the officials said, when euro-area finance ministers meet on a 130 billion-euro ($171 billion) aid package for Greece.

‘Sign of Relief’

“The swap is a major sign of relief, as it really allows Greece to buy more time,” Madhavji of Knightsbridge, said. “It kicks the can forward, and that is positive for markets.”

Luxembourg Prime Minister Jean-Claude Juncker said yesterday he was confident the needed decisions on the Greek rescue will be made Feb. 20. A separate private-sector bond swap may slice about 100 billion euros off Greece’s debt. Greece faces a bond redemption on March 20, when the government must come up with 14.5 billion euros or become the first country in the euro’s 13-year history to default.

“There are a lot of rumors that they will put a plan together and get through this, but until I see that in print I’ll reserve judgment,” said Blake Jespersen, Toronto-based director of foreign exchange at Bank of Montreal.

Jobless Claims

Canada’s dollar reversed losses against the greenback as Labor Department data showed claims for unemployment benefits in the U.S. decreased 13,000 in the week ended Feb. 11 to 348,000, the fewest since March 2008. American housing starts climbed more than forecast last month to an annual rate of 699,000, Commerce Department figures showed.

“There has been a nice little pickup for the Canadian dollar as markets are certainly more upbeat,” Bank of Montreal’s Jespersen said. “The U.S. data is continuing to surprise in many aspects.”

Factory sales in Canada rose for a second month in December, advancing 0.6 percent. The figure trailed a 2 percent increase forecast in a survey of economists by Bloomberg News.

Canadian government bonds fell, with the yield on the benchmark 10-year note rising two basis points, or 0.02 percentage point, to 2.03 percent. The five-year security’s yield climbed seven basis points to 1.44 percent. The government sold C$3.5 billion ($3.5 billion) of five-year debt yesterday.

Bond Auction

Canada will auction C$400 million of real-return bonds on Feb. 22, according to a statement on the Bank of Canada’s website. The 1.5 percent inflation-linked securities mature in December 2044.

Foreigners slowed their net purchases of Canadian securities in December, led by bonds, as the annual total declined from a record, Statistics Canada reported today. Purchases of bonds fell to C$2.12 billion, from C$5.90 billion in November. Total foreign net purchases of C$7.38 billion trailed November’s revised total of C$14.6 billion.

The Canadian currency gained 0.5 percent over the past week against nine developed-nation counterparts monitored by Bloomberg Correlation-Weighted Currency Indexes. The U.S. dollar was little changed, while the euro declined 0.5 percent.

--Editors: Greg Storey, Dave Liedtka

To contact the reporter on this story: Austen Sherman in New York at asherman18@bloomberg.net

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


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