Bloomberg News

Canadian Dollar Trades Within Half-Cent of Parity for Fourth Straight Day

February 27, 2012

Canada’s dollar traded within half a cent of parity with its U.S. counterpart for a fourth straight day as crude oil, the nation’s biggest export, fell from a nine- month high while American stocks rose.

The currency, called the loonie for the image of the aquatic bird on the C$1 coin, erased earlier losses as equities reversed a retreat after sales of previously owned American homes rose more than forecast. The U.S. is Canada’s biggest trade partner. The loonie had slid as stocks dropped, crimping demand for riskier assets.

“The market’s estimation for the Canadian dollar is that parity is a fair value,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto. “We are following broader markets as equities have come off the bottoms of the day.”

Canada’s currency was little changed at 99.90 cents per U.S. dollar at 5 p.m. in Toronto. It has traded on both sides of parity over the past four days, reaching its weakest level of C$1.0050 today and touching its strongest, 99.54 cents, on Feb. 23. The loonie remained above parity on Feb. 21. It gained today versus the majority of its 16 most-traded peers tracked by Bloomberg. One Canadian dollar buys $1.0010.

The loonie was poised for a 0.4 percent rise versus the greenback for February, its second straight monthly advance.

Stocks, Oil

The Standard & Poor’s 500 Index was up 0.1 percent after falling 0.8 percent earlier. The Canadian dollar tends to rise and fall with stocks. It has a 120-day correlation coefficient of 0.86 with the S&P 500. A reading of 1 would indicate they move in lockstep. The MSCI World Index of equities in developed nations was down 0.2 percent after falling 1 percent earlier.

Crude oil, Canada’s biggest export, retreated from a nine- month high. Crude for April delivery dropped 1.6 percent to $107.88 a barrel in New York. It touched $109.95 on Feb. 24, the highest level since May 4 on an intraday basis.

Investors should bet the euro will weaken against the Canadian currency, targeting a level of C$1.29, Royal Bank of Scotland Group Plc said in a client note. The euro’s advance against the loonie last week as oil prices surged and traders covered wagers that the 17-nation currency would fall is unlikely to continue, Robert Sinche, a strategist at RBS Securities in New York, wrote in the note. The European Central Bank also will conduct a long-term refinancing operation this week, expanding its balance sheet, he noted.

The euro weakened against the Canadian dollar today, breaking a seven-day winning streak. It traded at C$1.3384, down 0.4 percent.

Rebuff to Europe

The loonie fell earlier against most major peers after Group of 20 nations officials meeting in Mexico City heeded U.S. calls to defer a German bid to raise fresh money for the International Monetary Fund to help defuse Europe’s debt crisis. Euro-area efforts to bolster a financial firewall against the crisis are “essential” before consideration of such a move, according to a G-20 statement after meeting this weekend.

The ECB will offer a second round of unlimited three-year funds on Feb. 29 to boost liquidity and avert a credit crunch. Banks will seek 470 billion euros ($630 billion), approaching the 489 billion euro take-up by 500 financial firms at the first long-term refinancing operation on Dec. 21, according to a Bloomberg survey.

Canadian government bonds rose for a fourth straight day, pushing benchmark 10-year note yields down two basis points, or 0.02 percentage point, to 2.01 percent. They touched 1.97 percent, the least since Feb. 7.

Two-Year Auction

The yield on the two-year note slipped one basis point to 1.06 percent. The government is scheduled to auction C$3.5 billion ($3.5 billion) of two-year debt on Feb. 29.

The loonie erased losses after the National Association of Realtors’ index of pending home resales in the U.S. climbed 2 percent in January from a month earlier, indicating the industry that sparked the last recession is improving. The median forecast in a Bloomberg survey of economists was for a 1 percent advance.

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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