Canada’s dollar strengthened for a second day versus the euro after manufacturing in the 17-nation region shrank for a ninth month, signaling the region’s economic malaise is deepening.
The Canadian currency advanced 0.5 percent during the past month, third-most among 10 major currencies tracked by Bloomberg Correlation-Weighted Indexes, on speculation the North American economy will fare better than other developed regions. Bank of Canada Governor Mark Carney reiterated yesterday that higher interest rates “may become appropriate” as growth firms.
“Carney is certainly an island now; he’s the last of the hawks,” Dean Popplewell, chief strategist in Toronto at the online currency-trading firm Oanda Corp., said in an interview at Bloomberg headquarters in New York. “We’ll certainly see a hike by the beginning of next year.”
Canada’s currency, nicknamed the loonie, rose 0.5 percent to C$1.2979 per euro at 5 p.m. in Toronto, touching the strongest since April 18. It was little changed at 98.63 cents per U.S. dollar. One Canadian dollar buys $1.0139.
The currency has strengthened 1.4 percent this year against the Bloomberg Correlation-Weighted Currency Indexes. The U.S. dollar is off 2.4 percent and the yen is down 6.8 percent.
Government bonds rose, pushing the two-year yield down two basis points, or 0.02 percentage point, to 1.31 percent, the third straight decline, as the price of the 0.75 percent securities due May 2014 increased three cents to C$98.92.
Canadian two-year bonds yielded 1.05 percentage points more than equivalent-maturity U.S. Treasuries, the least since April 16, the day before Bank of Canada policy makers suggested interest rates may be rising as domestic economic growth and inflation exceeds forecasts.
Canada sold C$2.6 billion ($2.6 billion) of 10-year bonds. The 2.75 percent securities due in June 2022 drew an average yield of 2.096 percent, with a bid to cover ratio -- the amount bid relative to the amount on offer --of 2.5 times, according to the central bank’s website. The previous auction of 10-year bonds, on Feb. 1, drew an average yield of 2.015 percent and a coverage ratio of 2.31 times.
A manufacturing gauge in the euro region fell to 45.9 in April, a 34-month low, from 47.7 in March, Markit Economics said today. Readings below 50 indicate contraction. The report also indicated that job losses at factories increased and there was “weak” demand from both domestic and export customers.
“The markets are reacting to the PMI numbers that were a disappointment across the board,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada (NA) in Toronto, in a telephone interview, referring to the European manufacturing data. “The Canadian dollar will be influenced by the broader sense of global risk, and by global and U.S. economic data,”
The loonie lost as much as 0.5 percent against the greenback earlier after figures from Roseland, New Jersey-based ADP Employer Services showed U.S. companies added 119,000 workers in April, the fewest in seven months. The median forecast of economists surveyed by Bloomberg News called for a 170,000 advance.
“The weaker-than-expected ADP report sparked a modest retreat for the Canadian dollar,” said Blake Jespersen, director of foreign exchange in Toronto at Bank of Montreal’s BMO Capital Markets unit, in an e-mail. “The bias now is for a weaker Canadian dollar tomorrow on expectations of a lower non- farm payroll number.”
Canada ships about three quarters of its exports to the U.S., the world’s largest economy.
U.S. employers added 160,000 workers to payrolls in April, based on the median of 80 forecasts compiled by Bloomberg. The Labor Department is due to release the report on May 4.
“The Canadian dollar is going to be influenced by Friday’s payroll number,” said National Bank’s Spitz. “Funds continue to be supported above 98 cents and offered below parity,” he said, referring to the U.S.-Canada exchange rate.
The loonie, which traded as low as C$1.0319 in January, will weaken to parity with its U.S. counterpart by the end of June before strengthening to 98 cents at year-end, according to the median of 40 forecasts compiled by Bloomberg.
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