Bloomberg News

Canadian Dollar Breaks Three-Day Slide as Risk Aversion Falls

October 17, 2012

The Canadian dollar strengthened for the first time in four days against its U.S. counterpart as a decline in risk aversion renewed demand for currencies of nations that rely on natural resources.

The loonie, as the currency is nicknamed for the image of aquatic bird on the C$1 coin, declined the most in almost three months yesterday after Bank of Canada Governor Mark Carney suggested the prior day that he may reduce his economic outlook and delay raising policy interest rates. The currency gained after a report showed surging home housing starts in the U.S., Canada’s biggest trade partner.

“We have a little bit of a recovery,” George Davis, chief technical analyst for fixed income and currency strategy in Toronto at Royal Bank of Canada, said in telephone interview. “We had some stronger data out in the U.S. this morning, housing numbers, and that’s helped the backdrop a little bit.”

Canada’s currency rose 0.9 percent to 97.80 cents per U.S. dollar at 5:00 p.m. in Toronto. The currency declined 0.6 percent yesterday. One Canadian dollar buys $1.0225.

Oil futures were little changed at C$92 a barrel in New York after gaining as much as 0.8 percent earlier. The Standard & Poor’s Index advanced for the third day, rising 0.4 percent.

Investor risk aversion fell after Spain retained its high- grade ranking from Moody’s Investors Service. Spanish 10-year bonds extended an advance, pushing the yield on the notes to the lowest in more than six months.

Yields Rise

Government bonds fell, pushing the benchmark 10-year note up 0.09 percentage point, or nine basis points, to 1.91 percent. The price of the 2.75 percent notes maturing in June 2022 fell 81 cents to C$107.35.

Carney said in an Oct. 15 speech that his quarterly forecast next week will reflect a prolonged global recovery, suggesting he may reduce his growth forecasts and weaken a policy tightening stance at odds with other Group of Seven central banks that have been adding stimulus this year to boost growth.

“The Bank of Canada, despite Carney’s comments, has been very consistent that they feel a modest normalization of interest rates will be warranted in the future,” Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp. (BK:US), said in a telephone interview. “People are also expecting Canada in coming days to report strong retail sales.”

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net

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


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