Bloomberg News

Canada Dollar Up Versus Most Peers Before Europe Meeting

May 22, 2012

Canada’s dollar rose against most of its major counterparts before European Union leaders meet tomorrow in Brussels to address the region’s debt crisis.

The currency, nicknamed the loonie for the image of the bird on the C$1 coin, extended its advance against the euro as U.S. stocks erased gains. It fell versus the dollar. European officials will do “everything necessary” to keep Greece in the 17-nation euro and focus on steps to aid economic expansion, German Finance Minister Wolfgang Schaeuble said yesterday.

“The market is playing it very, very tight ahead of what will actually transpire, what will actually be said at the European meetings tomorrow,” said Dean Popplewell, chief currency strategist in Toronto at the online currency-trading firm Oanda Corp. “The market was caught quite a bit short the loonie believing that they would see more of a follow-through.” Short positions are bets an asset will fall in value.

Canada’s dollar appreciated 0.6 percent to C$1.2963 per euro at 3:56 p.m. in Toronto, gaining for a second day. It dropped versus the greenback, losing 0.5 percent to C$1.0224 per U.S. dollar after gaining as much as 0.2 percent earlier. The loonie touched C$1.0247 per dollar yesterday, the weakest level since Jan. 16. One Canadian dollar purchases 97.81 U.S. cents.

The Standard & Poor’s 500 (SPX) Index was down 0.2 percent after rallying as much as 1 percent. The MSCI World Index of stocks rose 0.4 percent after gaining as much as 1.3 percent.

The loonie was supported after the China Securities Journal reported that the nation plans to speed up approval of infrastructure projects and allocate construction funding faster to improve economic growth.

Bonds Fall

Canadian government bonds fell, pushing the yield on benchmark 10-year notes up three basis points, or 0.03 percentage point, to 1.91 percent. Five-year yields rose two basis points to 1.43 percent.

The greenback rose against all of its 16 most-traded peers except the South Korean won and Taiwanese dollar as stocks reversed their rally. New Zealand’s dollar, nicknamed the kiwi, was among the biggest losers among the most-traded currencies tracked by Bloomberg. The loonie climbed 1.1 percent to 77.03 cents per kiwi. The yen pared earlier losses, trading at 78.19 to the loonie, after falling earlier to 77.89.

The Canadian currency weakened earlier after Fitch Ratings lowered Japan’s sovereign-credit rating to A+, the fifth-highest ranking, citing limited progress by the government in tackling the world’s biggest public debt burden. Canada holds a top AAA rating from all three major credit-rating companies.

‘Was Not Helped’

Risk appetite “was not helped by the downgrade of Japan, which caused a spillover from dollar-yen strength to more general dollar strength,” said Adam Cole, global head of foreign-exchange strategy at Royal Bank of Canada’s RBC Capital Markets unit in London.

A government report tomorrow will show Canadian retail sales rose 0.3 percent in March after declining 0.2 percent in the previous month, according to the median estimate of economists in a Bloomberg News survey.

Bank of Canada Governor Mark Carney said last month interest-rate increases may be necessary as growth and inflation outpace his earlier projections, and as slack disappears from the economy. Policy makers have kept the benchmark rate at 1 percent since September 2010.

Odds of a rate boost by year-end were 41 percent today, according to Bloomberg calculations based on trading in overnight index swaps.

North American Prospects

Investors should buy the Canadian dollar, Mexican peso and U.S. dollar in favor of currencies of nations that export heavily to China, such as Australia’s dollar and the Korean won, because of North America’s prospects for growth, Deutsche Bank AG’s Alan Ruskin recommended.

“The North American markets are probably a better place to capture stronger relative growth,” Ruskin, global head of Group-of-10 foreign-exchange strategy in New York, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “There’s a dichotomy between a more resilient North America and some waning growth in the BRIC countries. All of Brazil, China, India are tending to see growth weaken.”

The Organization for Economic Cooperation and Development increased its economic growth forecasts for the U.S., Canada’s biggest trade partner, to 2.4 percent this year and 2.6 percent next. In November, it projected 2 percent and 2.5 percent.

The OECD, in a semiannual report, said Europe’s debt crisis risks spiraling and seriously damaging the world economy. Gross domestic product in the 17-nation euro union will shrink 1 percent this year instead of growing the 0.2 percent estimated earlier, the organization said.

Developed-Nation Peers

The loonie advanced 1 percent over the past month against nine developed-nation peers monitored by Bloomberg Correlation- Weighted Indexes. The U.S. dollar strengthened 4.5 percent, and the yen climbed 6.8 percent. The euro weakened 0.4 percent.

JPMorgan Chase & Co. revised its forecast for Canada’s dollar to C$1.04 per U.S. dollar by mid-year, compared with a 98 Canadian-cents estimate as of May 11, the firm said today in a report.

The loonie will strengthen to parity with the U.S. dollar by the end of June and gain to 99 Canadian cents by year-end, according to the median forecast of 40 currency strategists surveyed by Bloomberg News.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

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


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