Bloomberg News

Canada Dollar Rallies for 4th Week to Parity With U.S. Dollar

August 04, 2012

Canada’s dollar reached parity with its U.S. counterpart for the first time since May as stocks and crude oil rallied after July payrolls in America, the nation’s biggest trading partner, rose more than forecast.

The currency gained for a fourth week versus the greenback, the longest streak in six months, even as central bankers in the U.S. and Europe refrained from additional addition momentary stimulus to bolster economic growth. The nation’s employers added more jobs last month, according to median forecast in a Bloomberg News survey of economists before an Aug. 10 report from Statistics Canada.

“We’ve had this big, big reversal where the Canadian dollar has come back with a vengeance and plowed its way right through parity,” Eric Lascelles, chief economist in Toronto at Royal Bank of Canada’s RBC Global Asset Management unit, said in a phone interview. Investors had developed “unbelievable anticipation of central bank action, and that expectation was ultimately not fulfilled so the market was disappointed,” he said.

Canada’s currency, nicknamed the loonie, rose 0.2 percent this week to C1.0013 per U.S. dollar in Toronto. The currency, which last gained for four weeks during the period ended Feb. 3, is up 0.2 percent versus the greenback this month. One Canadian dollar buys 99.87 U.S. cents.

Price Swings

Implied volatility for one-month options on the Canadian dollar versus the greenback rose for the second week, reaching 6.54 percent. The five-year average is 12 percent. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings.

Decreased volatility makes investments of currencies of nations with higher benchmark interest rates more attractive because there is less risk of market moves erasing profits.

Futures traders reversed their bets that the Canadian dollar will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the Canadian dollar compared with those on a drop -- so-called net longs -- was 12,449 on July 31, compared with net shorts of 2,432 a week earlier. Futures are agreements to buy or sell assets at a set price and date.

Moving Averages

The loonie traded stronger than its 50-, 100- and 200-day moving averages versus the greenback this week. The last time the two currencies 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 cents on April 27 and as weak as C$1.0447 on June 4.

Canadian government 10-year bonds declined for a second week, pushing yields up two basis points, or 0.02 percentage point, to 1.77 percent. The 2.75 percent securities maturing in June 2022 dropped 23 cents to C$108.83.

The loonie extended gains yesterday after a Labor Department report showed U.S. payrolls added 163,000 jobs following a revised 64,000 rise in June that was less than initially reported, Labor Department figures showed in Washington. The median estimate of 89 economists surveyed by Bloomberg News called for a gain of 100,000. Unemployment rose to 8.3 percent, from 8.2 percent.

“What’s good for the U.S. economy is generally good for Canada,” Shaun Osborne, chief currency strategist at Toronto- Dominion’s TD Securities unit, said in a telephone interview.

European Policy

The Canadian dollar rose against the euro Aug. 2 after ECB President Mario Draghi said details of a plan to buy enough sovereign bonds to remove doubts about the shared currency’s future would be fleshed out in coming weeks.

Investors should buy higher-yielding currencies such as the Canadian and Australian dollars against the euro, according to Greg Anderson at Citigroup Inc. Canada’s dollar reached a record high against the euro Thursday, trading as strong as C$1.2197, before dropping 0.4 percent for the week.

“The one puzzle in the Canadian dollar is that it’s been holding up better than one might have expected, given all the concerns about global growth,” Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, said in a phone interview from Toronto. “Whatever jitters we have on global growth are now playing two ways on the Canadian dollar: they’re negative on the prices of resources we export, but a plus for bond inflows into a safe haven.”

Oil Rally

Oil surged the most in a month yesterday after service industries expanded at a faster pace, bolstering optimism about economic strength in the U.S., the world’s biggest crude- consuming country. Crude oil futures climbed 1.4 percent this week to $91.40 a barrel in New York.

Canada added 9,000 jobs in July, up from 7,300 in June, according to the median estimate of 19 economists surveyed by Bloomberg News before the report next week. The nation’s jobless rate remained at 7.2 percent, according to a separate survey.

The loonie fell 0.5 percent this week against nine major counterparts, according to the Bloomberg Correlation-Weighted Indexes. It has gained 2 percent this year, while the U.S. dollar lost 0.2 percent.

Canada’s dollar will end the year at C$1.01 per U.S. dollar, according to median estimate of 43 forecasters surveyed by Bloomberg News.

To contact the reporter on this story: Lindsey Rupp in New York at lrupp2@bloomberg.net Katia Dmitrieva in Toronto at edmitrieva1@bloomberg.net

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


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