Bloomberg News

Canada Dollar Gains as Risk Appetite Rises on U.S. Manufacturing

November 01, 2012

The Canadian dollar strengthened from almost a three-month low versus its American counterpart as an unexpected rise in a gauge of manufacturing in the U.S., Canada’s biggest trading partner, boosted appetite for risk.

Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, gained versus the majority of its 16 most-traded peers after a private report said U.S. companies added more workers than forecast. The loonie fell earlier before data tomorrow forecast to show Canadian job growth slowed and the U.S. unemployment rate increased.

“A positive for U.S. manufacturing is definitely a positive for Canada,” Eimear Daly, a currency market analyst at Monex Europe Ltd. in London, said in a phone interview. “The majority of Canadian shipments is to the U.S., and so the loonie reacts quite strongly to U.S. data.”

The loonie appreciated 0.3 percent to 99.65 cents per U.S. dollar at 5 p.m. in Toronto. It declined 0.2 percent earlier to C$1.0013, trading below parity for a fourth day, after touching C$1.0019 on Oct. 30, the weakest level since Aug. 6. One Canadian dollar buys $1.0035.

The currency strengthened beyond its 200-day moving average of 99.94 cents to the greenback, which it breached Oct. 29, and touched its 100-day moving average of 99.68. It has traded weaker than its 50-day moving mark since Oct. 18.

Moving averages are levels that are seen by some traders as turning points in the direction of a security’s price. The average, a momentum indicator, is calculated by adding closing prices for a specific number of assessment days, then dividing by that number.

Erased Losses

The loonie erased losses as the company-hiring and U.S. manufacturing reports were issued.

The Institute for Supply Management’s U.S. factory index rose to 51.7 in October from 51.5 a month earlier, the Tempe, Arizona-based group said today. Economists in a Bloomberg News survey projected a reading of 51. The dividing line between expansion and contraction is 50.

U.S. companies added 158,000 workers in October, from a revised 114,000 in September that was fewer than the 162,000 first estimated, a report by ADP Research Institute Roseland, New Jersey, showed. A Bloomberg survey forecast 131,000.

U.S. stocks gained, with the Standard & Poor’s 500 (SPX) Index climbing 1.1 percent. The S&P GSCI Index of 24 raw materials rose as much as 0.6 percent after data showed China’s manufacturing expanded in October for the first time in three months.

‘Definite Bounce’

“ISM manufacturing is pointing to a risk-on tone in the market,” said Monex’s Daly. “There’s a definite bounce off this for a stronger Canadian dollar.”

Canada’s government bonds were little changed, with the benchmark 10-year note yielding 1.79 percent. The price of the 2.75 percent security due in June 2022 declined 5 cents to C$108.44.

Fidelity Investments, the second-largest mutual-fund company, is shifting holdings of Canadian corporate debt to government securities on concern that slowing global growth will weigh on the nation’s economy.

Canadian corporate bonds have outperformed this year, gaining 5.7 percent through October, compared with returns of 2.1 percent for government and 2.7 percent for provincial securities, according to Bank of America Merrill Lynch data. Corporate debt advanced 0.7 percent in October, the lowest monthly gain since June.

Employment Data

The loonie earlier sank to within one cent of the weakest level since August before jobs reports tomorrow.

Employers in Canada added 10,000 jobs last month, after an increase of 52,100 in September, economists in a Bloomberg survey forecast before a government report tomorrow. The U.S. unemployment rate rose to 7.9 percent in October, from 7.8 percent the previous month, another Bloomberg survey forecast before the Labor Department issues the data tomorrow.

The loonie has gained 0.4 percent this year against nine developed-nation currencies tracked by Bloomberg Correlation- Weighted Indexes. The greenback has lost 2.3 percent, while the yen and euro are the biggest losers, dropping 6.7 percent and 2.5 percent.

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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