Canadian Dollar Gains Versus Euro as ECB Holds Interest Rates Unchanged

By Catarina Saraiva and Allison Bennett - Feb 3, 2011 11:57 PM GMT+0800

The Canadian dollar reached the strongest in almost two weeks against the euro after the region’s central bank left interest rates unchanged, damping demand for the common currency.

European Central Bank President Jean-Claude Trichet said inflation risks are “broadly balanced,” dimming the prospects of an increase in interest rates. The loonie, as the currency is nicknamed, weakened against the U.S. dollar as stocks and commodities fell, curtailing the allure of higher-yielding currencies.

“The Canadian dollar is appreciating by default after the non-hawkish tone from Trichet this morning,” said Dean Popplewell, an analyst in Toronto at the online currency-trading firm Oanda Corp. “The main focus will be on nonfarm payrolls tomorrow. The market is somewhat quietly bullish on a stronger number and that should provide further bullish momentum for the dollar and drag the loonie higher.”

The Canadian dollar gained 1.1 percent to C$1.3498 per euro at 10:55 a.m. in Toronto, after strengthening to C$1.3479, the strongest since Jan. 21. The currency fell 0.3 percent to 99.05 cents per U.S. dollar, from 98.79 yesterday. One Canadian dollar buys $1.0096.

ECB Rates

The ECB kept interest rates at 1 percent and did not change the region’s anti-inflation stance even after the gauge accelerated last month the fastest since October 2008. The decision was expected by all 58 economists surveyed by Bloomberg. The ECB benchmark interest rate is equal to that of Canada’s.

The Standard & Poor’s 500 Index fell 0.4 percent. Crude oil dropped 0.7 percent to trade at $90.26 after advancing as much as 1.3 percent.

“The Canadian dollar is still somewhat of a risk barometer,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank. Risk aversion is helping the U.S. dollar. We’re not seeing that much positive impact on the Canadian dollar.”

Government bonds fell, pushing the yield on Canada’s benchmark 10-year note up four basis points to 3.41 percent, the highest level since June. The price of 3.5 percent security due in June 2020 dropped 28 cents to C$100.71.

Both the U.S. and Canada will report January unemployment Feb. 4. Canada added 15,000 jobs in the month after a 30,400 gain in December, according to the median estimate in a Bloomberg News survey of 26 economists.

Copper for three-month delivery climbed as high as $10,000 a ton and was up $2 at $9,947 inLondon. Canada derives about half its export revenue from the sale of commodities.

To contact the reporters for this story: Catarina Saraiva in New York atasaraiva5@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net

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