Canada’s dollar gained for a third day against its U.S. counterpart as commodities rose amid speculation Cyprus is moving closer to a deal to stave off financial collapse, improving investor appetite for risk.
The currency strengthened yesterday after Finance Minister Jim Flaherty said he plans to eliminate the country’s deficit before the next election in 2015. The so-called loonie was headed for a sixth drop in seven weeks versus the greenback as futures traders increased their bets that the Canadian dollar will decline to the highest level since March 2007. Canada’s economy grew in January after contracting the prior month, a report is forecast to show next week.
“The commodity increases reflect investor optimism when it comes to riskier assets,” Ravi Bharadwaj, a market analyst in Washington with Western Union Business Solutions, a unit of Western Union Co. (WU:US), said by phone. “With the latest news that suggests that Cyprus might find a resolution relatively soon, along with the better-than-expected retail sales, the Canadian dollar has the wind to carry it forward.”
The loonie, as the Canadian dollar is known for the image of the waterfowl on the C$1 coin, rose 0.2 percent to C$1.0232 per U.S. dollar at 5 p.m. in Toronto. It gained as much as 0.6 percent yesterday, the most since March 14. One loonie buys 97.73 U.S. cents.
Canada’s benchmark 10-year government bonds fell, pushing yields up one basis point, or 0.01 percentage point, to 1.82 percent. The 2.75 percent security maturing in June 2022 fell six cents to C$107.85.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the Canadian dollar compared with those on a gain -- so-called net shorts -- was 65,331 on March 19, compared with net shorts of 53,397 a week earlier, figures from the Washington-based Commodity Futures Trading Commission show.
Implied volatility for three-month options on the greenback versus the Canadian dollar touched 6.1, almost the lowest in a month, and is down 13 percent in March. Implied volatility signals the expected pace of currency swings and is quoted by traders to set prices. Lower volatility correlates with a stronger Canadian dollar versus its U.S. counterpart.
Futures on crude oil, Canada’s largest export, rose 1.5 percent in New York to $93.82 a barrel.
Canadian oil exports to the U.S. gained in 2012 even as the world’s largest economy imported the lowest amount of crude oil last year in any year since 1997, according to a government report released March 20. Imports from Canada have gone up since 2005 compared to fewer imports from Saudi Arabia, Mexico and Venezuela, the U.S. Energy Information Administration said.
“Canada is still grabbing a larger market share of U.S. oil market, despite the U.S. oil boom,” David Watt, chief economist at HSBC Bank Canada in Toronto, said by phone. “That is a very good story for Canada, at least in terms of oil volume.”
The loonie advanced versus the dollar of Australia, a fellow commodity exporting nation, as Western Canada Select, the benchmark for oil-sands bitumen, traded at a discount of $16.50 to U.S. West Texas Intermediate price, the lowest since Oct. 17. The discount has fallen from $42.50 on Dec. 14.
The Canadian dollar fell against the euro as Cyprus’s House of Representatives approved the passage of legislation to allow capital controls and to create a “solidarity” investment fund, part of an attempt to secure financial support from the euro area and International Monetary Fund. Legislators were debating another seven laws, including one to reorganize the nation’s banks.
“The correlation between the Canadian dollar and the euro has strengthened on a short-term basis, and that signals the importance of Cyprus for the Canadian dollar,” Camilla Sutton, chief currency strategist at the Bank of Nova Scotia in Toronto, said by phone.
The loonie declined 0.5 percent to C$1.3290 versus the 17- nation shared currency.
Canadian Finance Minister Flaherty’s budget projected Canada will swing to a surplus of about C$800 million ($781 billion) in the fiscal year that begins April 2015, from a C$25.9 billion deficit in the year ending this month.
Gross domestic product in Canada expanded 0.1 percent in January after contracting 0.2 percent the previous month, according to the median estimate in a Bloomberg survey of 18 economists before the report is released on March 28.
The loonie has fallen 2.6 percent in the past six months against nine developed nation peers tracked by the Bloomberg Correlation Weighted Indexes. Both the U.S. dollar and the euro have gained 2.7 percent.
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