Bloomberg News

Canadian Dollar Touches Week High on Commodity Prospects

April 13, 2012

Canada’s dollar reached its highest level versus its U.S. counterpart this week on speculation commodity exporters will weather a global slowdown.

The currency rose today against most of its major counterparts tracked by Bloomberg and was headed for a 0.3 percent advance against the greenback this week. Government bonds rose for the first time in three days before next week’s Bank of Canada decision on interest rates. The Canadian dollar’s volatility fell.

“What the commodity currencies offer is high yield to the U.S. and more positive growth prospects,” said Steven Saywell, head of foreign-exchange strategy for Europe at BNP Paribas SA in London, in a telephone interview, referring to the dollars of Canada, Australia and New Zealand. “We quite like them.”

Canada’s currency, nicknamed the loonie, was little changed at 99.44 cents per U.S. dollar at 8:50 a.m. in Toronto, after touching 99.27 cents, the strongest level since April 6. One Canadian dollar buys $1.0057.

The loonie rose the most today against the Swiss franc and the euro as volatility fell.

Implied volatility for one-month options on the Canadian dollar versus the greenback decreased to 6.96 percent, compared with 6.75 percent on March 19, the lowest level since June 2007.

Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings. Lower volatility tends to favor higher-yielding currencies such as the Canadian dollar.

Bonds Rally

A gain in government bonds pushed yields on 10-year securities down three basis points, or 0.03 percentage point, to 2.02 percent. The yields fell on April 10 to below 2 percent for the first time since March 13.

Government bonds have lost 0.4 percent this year, according to Bank of America Merrill Lynch indexes. Canada’s primary measure of stocks, the Standard & Poor’s/TSX Composite Index, has increased 2.2 percent as investors seek higher-yielding assets on bets the worst of the European debt crisis is over.

Bank of Canada policy makers meet on April 17 to determine interest rates. Governor Mark Carney kept the target lending rate at 1 percent last month in the longest pause since the 1950s on signs a strong currency and fragile global recovery will restrain exports.

The loonie will appreciate to 98 cents by the end of 2012, according to the median of 31 forecasts in a Bloomberg News survey of economists.

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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