Canada Dollar Trades at Almost 3-Month High on Growth Prospects

By Cordell Eddings and Liz Capo McCormick - Aug 21, 2012 5:25 AM GMT+0800

Canada’s dollar held close to its strongest level in more than three months amid improved economic growth prospects and speculation European officials are moving closer to curbing their sovereign-debt crisis.
The currency extended a sixth consecutive weekly gain versus its U.S. counterpart, the longest winning streak in almost two years, amid speculation North American economic growth will sustain demand for the nation’s exports.

“The fundamental picture in Canada is not great, but it’s better than Japan, Europe, and maybe even the U.S.,” Blake Jespersen, director of foreign exchange at Bank of Montreal (BMO), said in a phone interview from Toronto. “And the general risk- positive tone in the market has been a boon to the Canadian dollar, especially with the stream of negative headline out of Europe having peaked for now.”

Canada’s currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, rose 0.1 percent to 98.84 cents per U.S. dollar at 5 p.m. in Toronto. One Canadian dollar buys $1.01174. The loonie touched 98.60 cents on Aug. 16, the strongest level since May 3.
The Canadian currency climbed last week against the greenback amid higher-than-forecast retail sales and industrial production in the U.S., Canada’s biggest trade partner.

Biggest Export

Crude-oil futures touched a three-month high. Contracts for crude oil, Canada’s biggest export, climbed to as high as $96.53 a barrel in New York, the highest since May 11. They rose for a fourth week last week as investors bet that U.S. growth may be accelerating and European officials were moving closer to curbing their sovereign-debt crisis.
The yield difference between the two-year U.S. Treasury and Canadian government notes has widened to 91 basis points from 63 basis points in June, the least this year.
“Interest-rate differentials have been moving in favor of the Canadian dollar, and we’ve had stronger commodity prices and risk appetite, which has given the loonie scope to rally,” said Maria Jones, a currency trader at Toronto-Dominion Bank (TD)’s TD Securities unit in Toronto. “There is scope for more short-term rallying given the stimulative nature of global central banks.”
Yields on Spanish and Italian bonds dropped to six-week lows on speculation leaders will agree on a plan to contain the debt crisis. The ECB’s governing council may decide at its next gathering to set yield limits on each country’s debt, Spiegel magazine reported yesterday, without saying where it got the information.

Growth Expectations

European stocks swung between gains and losses after Germany’s Bundesbank stepped up its criticism of the European Central Bank’s bond-buying program.
Canadian retail sales increased 0.1 percent in June, lagging behind May’s 0.3 percent growth, economists surveyed by Bloomberg projected before Statistics Canada reports the data on Aug. 22.
“The overall trend has been a grind lower for the exchange rate” with the Canadian currency appreciating, said Jack Spitz, managing director of foreign exchange at National Bank of Canada (NA) in Toronto. “Supporting the move are fundamentals in Canada, including foreign direct investment -- most notably by central banks looking for reserve diversification -- rising commodity prices and better performance by the equity markets.”
U.S. reports this week are forecast to show the world’s biggest economy is gaining momentum.

Futures Wagers

Existing home sales rose 3.3 percent in July from June, when they dropped 5.4 percent, according to a Bloomberg survey before the National Association of Realtors’ report on Aug. 22. Sales of new homes, due the next day from the Commerce Department, rose 4.3 percent in July, a separate survey showed. Orders for durable goods climbed 2.5 percent, the most this year, a Commerce Department report on Aug. 24 will show, based on another survey.

Futures traders increased their bets that the Canadian dollar will gain 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 an advance in Canada’s currency compared with those on a drop -- so-called net longs -- was 28,593 on Aug. 14, compared with net longs of 19,122 a week earlier.

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Liz Capo McCormick in New York at emccormick7@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net