Bloomberg News

Canada Dollar Trades at Almost Five-Week High Before Fed Meeting

July 26, 2013

The Canadian dollar traded at almost a five-week high before the Federal Reserve meets next week amid speculation policy makers will maintain monetary stimulus in the nation’s biggest trade partner.

The currency rose for a third week as investors prepare for next week’s Federal Open Market Committee where Chairman Ben. S. Bernanke is expected to maintain the current level of monetary stimulus, according to a Bloomberg survey. A report next week is forecast to show gross domestic product grew 0.3 percent in May after expanding 0.1 percent in April.

“The focus for the Canada dollar is on the events next week, so consolidation should prevail,” said Greg T. Moore, a currency strategist at Toronto-Dominion Bank. “Markets are looking for anything that could shed light on what the Fed’s thinking is on QE.”

The loonie, as the currency is nicknamed for the image of the waterfowl on the C$1 coin, was little changed at C$1.0278 per U.S. dollar at 5 p.m. in Toronto. One loonie buys 97.30 U.S. cents. The Canadian currency gained 0.4 percent yesterday and touched C$1.0255, the strongest level since June 19. It has advanced 0.9 percent on the week.

“Dollar Canada has traded in a fairly narrow range in the absence of domestic economic news,” Jack Spitz, managing director of foreign exchange at National Bank of Canada (NA) said by phone from Toronto.

Moving Averages

The Canadian currency has traded stronger than its 50-day average versus the dollar since July 22. The currency also touched its 100-day moving average for the third consecutive day. Breaching moving averages signal to some traders a move has momentum to continue.

Futures traders decreased 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 a decline in the Canadian dollar compared with those on a gain -- so-called net shorts -- was 16,758 on July 23, compared with net shorts of 20,043 a week earlier.

Government bonds rose, as the yield on the 10-year benchmark fell one basis point to 2.45 percent. The 1.5 percent note due June 2023 gained 11 cents to C$91.76.

Oil Correlation

Crude oil futures fell 0.8 percent to $104.64 per barrel in New York. The asset is near its lowest correlation with the Canadian dollar, considered a commodity currency, in more than a month.

“Since June, the correlation with oil has fallen off a cliff,” Moore said. “It fits with historical patterns where strong crude rallies usually corresponds with a deterioration of the correlation.”

Crude oil, Canada’s biggest export, has remained above $100 since July 2, the longest stretch since May 2012.

The loonie has risen 0.2 percent this month against nine developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index. The yen fell 2.5 percent and the euro is down 0.4 percent.

To contact the reporter on this story: Jeff Marshall in New York at jmarshall75@bloomberg.net

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


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