Feb. 17 (Bloomberg) -- The Canadian dollar traded within a cent of the strongest level in three months against its U.S. counterpart amid bets Greece will win a bailout and a government report that showed the inflation rate unexpectedly accelerated.
The currency gained for the week as investor appetite for risk increased after German Chancellor Angela Merkel and Greek Prime Minister Lucas Papademos expressed optimism a deal on Greece can be reached at a meeting of euro-area finance ministers on Feb. 20. Crude oil, Canada’s biggest export, climbed to a nine-month high.
“Overall, the market is oscillating back and forth on Greek headlines, although it seems that it’s highly unlikely that they don’t get a deal done,” said Firas Askari, head currency trader at Bank of Montreal in Toronto.
Canada’s currency was little changed at 99.68 cents per U.S. dollar at 5 p.m. in Toronto after gaining as much as 0.3 percent to 99.41 cents and weakening 0.2 percent to 99.85 cents. It touched 99.26 cents on Feb. 9, the strongest since Oct. 31. One Canadian dollar buys $1.0032. The currency rose 0.5 percent for the week.
The currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, reached its low of the day after U.S. stocks briefly erased gains as optimism on Greece failed to drive the Standard & Poor’s 500 Index above last year’s peak. The gauge later rose 0.2 percent.
Crude oil for March delivery gained 1.7 percent to $104.06 a barrel in New York and touched $104.14, the most since May 11.
Implied volatility for one-month options on the Canadian dollar versus the greenback fell for the first time in four days after jumping yesterday to the highest intraday level in two weeks, 8.61 percent. It touched 7.77 percent today after reaching 7.66 percent on Feb. 10, the least since April. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings. It averaged 10 percent over the past year.
The Canadian consumer price index rose 2.5 percent in January from a year earlier after December’s 2.3 percent gain, Ottawa-based Statistics Canada said. Economists in a Bloomberg News survey forecast the rate would stay at the previous level. It advanced 0.4 percent in January after falling 0.6 percent the previous month.
The loonie remained stronger versus the greenback as U.S. Labor Department data showed American consumer prices rose last month less than forecast. They gained 0.2 percent, after no change in the previous month. Over the past year, prices increased 2.9 percent, the smallest year-to-year advance since March 2011.
Aid to Greece
The Canadian dollar fell against the euro for a second day, slipping 0.1 percent to C$1.3099, after a conference call between the leaders of Italy, Greece and Germany.
European governments are considering cutting interest rates on emergency loans to Greece and using contributions from the European Central Bank to plug a new financing gap in the second Greek bailout, two people familiar with the talks said yesterday. The euro pared gains versus the loonie and greenback on concern an ECB swap of Greek bonds for new ones may trigger rating cuts.
Canadian government bonds fell, pushing benchmark 10-year note yields up two basis points, or 0.02 percentage point, to 2 percent. Five-year note yields increased as much as four basis points to 1.48 percent, the highest since Nov. 30, before trading at 1.45 percent. The government sold C$3.5 billion ($3.5 billion) of five-year debt this week.
Canada will auction C$400 million of inflation-linked securities on Feb. 22, according to a statement on the Bank of Canada’s website. The 1.5 percent real-return bonds mature in December 2044.
The Canadian dollar rose 1.8 percent over the past three months against nine developed-nation counterparts monitored by Bloomberg Correlation Weighted Currency Indexes. The U.S. dollar weakened 1.7 percent, and the euro dropped 4.3 percent.
--Editors: Greg Storey, Dennis Fitzgerald
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