Bloomberg News

Canadian Dollar Rallies With Commodities as Risk Appetite Rises

October 11, 2012

The Canadian dollar advanced for the first time in three days against its U.S. counterpart as commodities rallied on positive risk sentiment and Canada’s trade deficit narrowed.

The loonie, as the currency is nicknamed for the image of the waterfowl on the C$1 coin, amid speculation Europe’s debt crisis will ease. lessening the haven appeal of the world’s reserve currency. Government bonds declined as applications for U.S. jobless benefits dropped.

“The trade deficit data had a positive slant,” Chris Gaffney, chief investment officer of EverBank Wealth Management Inc., said in a phone interview from St. Louis. “It’s adding to but not driving this market. The Italian bond sale turned the tables in the morning, and the day turned risk-on following that. That’s what we’re trading on more than any specific data out of North America.”

Canada’s currency added 0.3 percent to 97.86 cents per U.S. dollar at 5:00 p.m. in Toronto after rising as much as 0.6 percent, the most this week. One Canadian dollar buys $1.0219. The loonie has gained 4.4 percent this year.

Italy sold 3.75 billion euros ($4.8 billion) of its benchmark three-year bond to yield 2.86 percent, more than the 2.75 percent at the last auction of the same securities on Sept. 13. Investors bid for 1.67 times the amount offered, up from 1.49 times last month, indicating investors are still willing to invest in the country.

Risk On

Crude oil, Canada’s largest export, gained 1.2 percent and the Standard & Poor’s GSCI Index (SPX) of 24 raw materials advanced 1.1 percent. The Standard & Poor’s 500 Index added 0.02 percent, snapping a four-day losing streak.

“There’s overall positive risk sentiment in the market today that’s pulled the Canadian dollar up with it,” Blake Jespersen, managing director of foreign exchange at Bank of Montreal (BMO), said in a phone interview from Toronto. “We’ve seen a fair rally in the euro overnight, oil prices are rising, and equity markets are off to a good start.”

Canadian government bonds were little changed, with the yield on the benchmark 10-year note rising one basis point, or 0.01 percentage point, to 1.81 percent. The price of the 2.75 percent note maturing in June 2022 fell 12 cents to C$108.33.

Trade Deficit

The Canadian merchandise trade deficit narrowed in August more than a Bloomberg News survey forecast on the steepest decline in imports in more than three years. The deficit of C$1.32 billion ($1.35 billion) followed a revised shortfall of C$2.53 billion in July, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg had forecast a C$1.9 billion deficit, based on the median of 21 forecasts.

Sluggish exports have helped keep Canada’s economic growth rate below 2 percent in the first two quarters of this year.

The Bank of Canada sold C$2.7 billion in three-year bonds yesterday, with an average yield of 1.282 percent. The total bid was C$7.87 billion, for a bid-to-cover ratio of 2.92, measuring the level of bids versus the amount of debt for sale.

U.S. jobless claims fell more than forecast by economists to a four-year low last week, reflecting a healing labor market in Canada’s largest trading partner. Applications for jobless benefits dropped 30,000 to 339,000 in the week ended Oct. 6, the fewest since February 2008, Labor Department figures showed today. A Bloomberg survey forecast 370,000 claims.

The loonie has gained 2.6 percent this year, the third most among 10 industrial-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar declined 2.2 percent and the yen slipped 4.2 percent, the most among decliners. New Zealand’s dollar rose 3.5 percent to lead gainers.

Commodities Pool

Brazilian Finance Minister Guido Mantega said the so-called

BRICS nations of Brazil, Russia, India, China and South Africa are working to create a pool of reserves to provide a “rearguard” of financial support.

“The emerging markets now have something to fall back on,” EverBank’s Gaffney said. “It boosts the commodity-driven currencies and gives some confidence to the market. That’s going to help the currencies that are dependent on the global economic rebound, and Canada is certainly one of them.”

The pool will be modeled on the Chiang Mai Initiative for Japan, China, South Korea and 10 Southeast Asian nations, Mantega said. Those countries have $240 billion of emergency liquidity on tap to shield the region from global financial shocks after the funding was doubled this year.

To contact the reporter on this story: Katia Dmitrieva in Toronto at edmitrieva1@bloomberg.net

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


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