Bloomberg News

Canada Dollar Reaches 10-Week High Before Central Bank Meetings

July 30, 2012

Canada’s dollar touched the strongest level in more than 10 weeks versus its U.S. counterpart before a meeting where the Federal Reserve may signal it will take further steps to bolster the economy of the nation’s biggest trade partner.

The currency moved closer to parity with the greenback as European stocks rose amid bets the European Central Bank may undertake additional monetary stimulus at a meeting Aug. 2. Officials said they’d do everything they could to support the euro. Fed Chairman Ben S. Bernanke opens a two-day meeting tomorrow. Canadian-dollar gains were tempered before a report tomorrow that may show the nation’s economy expanded more slowly in May than the previous month.

“Given the positive comments out of the ECB last week, the market’s hoping that we get more good news this week,” Steve Butler, director of foreign-exchange trading in Toronto at Bank of Nova Scotia’s Scotia Capital unit, said in a telephone interview. “The market’s really leaning on getting a bit more good news from either Bernanke or the ECB this week, and that’s got the market feeling good about Canada.”

The Canadian currency, nicknamed the loonie, gained 0.2 percent to C$1.0016 per U.S. dollar at 5 p.m. in Toronto. It touched C$1.0014, the strongest since May 15. One Canadian dollar buys 99.84 U.S. cents.

The last time the two traded on a one-to-one basis was May 15, when the loonie touched 99.90 cents to the greenback. Canada’s dollar has traded in 2012 as strong as 98.04 cents on April 27 and as weak as C$1.0447 on June 4. Butler said he does not expect the currency to trade below parity with the greenback before the events of the week.

Monthly Gain

Canada’s dollar was poised for a monthly gain of 1.5 percent against the greenback. For the year, the Canadian currency has strengthened 2 percent against the U.S. dollar.

The Stoxx Europe 600 Index climbed 1.6 percent. U.S. stocks ended the day little changed after falling earlier on speculation they rose too far, too fast last week. The Standard & Poor’s 500 Index lost as much as 0.3 percent.

Canadian government bonds rose, pushing the benchmark 10- year yield down five basis points, or 0.05 percentage point, to 1.70 percent. The price of the 2.75 percent security due in June 2022 added 44 cents to C$109.50.

Slow Rise

The loonie will probably rise slowly against the greenback after breaking through key support zones, according to JPMorgan Chase & Co. It may reach parity with its U.S. counterpart and test support area at 99.50 U.S. cents, which represents the 76.4 percent retracement level from the pair’s April low.

“With short-term-momentum studies still oversold, the downside bias will likely be a grind,” Niall O’Connor, a New York-based technical analyst at JPMorgan, wrote in a note to clients today.

Crude oil for September delivery fell as much as 0.9 percent to $89.33 a barrel in New York.

The Canadian dollar touched the weakest level in almost five months versus its Australian counterpart. It dropped as much as 0.3 percent to C$1.0553 per Aussie dollar, the lowest since March 8.

“When markets move higher, in general, the Australian dollar picks up more of those gains on a relative basis versus the Canadian dollar,” Blake Jespersen, managing director of foreign exchange in Toronto at Bank of Montreal, said in a telephone interview. “The reason for that is that it’s tied to a higher growth economy or part of the world, notably China, whereas the Canadian dollar is tied more to U.S. growth.”

Canadian GDP

Canada’s gross domestic product, the value of all goods and services produced, rose 0.2 percent in May from a month earlier, when it gained 0.3 percent, according to the median estimate of economists surveyed by Bloomberg News before Statistics Canada reports the data tomorrow. The U.S. GDP slowed in the second quarter to 1.5 percent, from 2 percent in the first quarter, the government said last week.

“If this number does arrive on consensus you could speak of slight contentment and a slightly stronger Canadian dollar just because it will contrast notably with the U.S. GDP figures,” said Eric Lascelles, chief economist at Royal Bank of Canada’s RBC Global Asset Management until in Toronto, which manages about $250 billion.

The pace of U.S. hiring in July probably failed to reduce the 8.2 percent jobless rate in the country, economists in a Bloomberg survey said before a report this week. Other U.S. data may show manufacturing stagnated in July and consumer confidence fell for a fifth month.

Fed Option

While the Fed refrained from introducing a third round of asset purchases at its meeting last month, Fed Chairman Ben S. Bernanke indicated that it’s a possibility. The central bank purchased $2.3 trillion of securities from 2008 to 2011 in two rounds of a stimulus strategy called quantitative easing.

“The bar has been set quite high here in terms of expectations and lots of musings about the Fed, and generally optimism has proven unwise when it comes to policy makers,” Lascelles said. “I’m going to go out on a limb here and say this week they may actually manage to deliver, and so we could see the risk-on trade flourish and the Canadian dollar could be along for the ride.”

To contact the reporter on this story: Lindsey Rupp in New York at lrupp2@bloomberg.net; Ari Altstedter in Toronto at aaltstedter@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net


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