Canadian Dollar Rises From 1-Month Low on Central Bank Sentiment

By Cordell Eddings and Joseph Ciolli - Oct 5, 2012 5:17 AM GMT+0800

Canada’s dollar rose for the first time in three days against its U.S. peer after Bank of Canada Senior Deputy Governor Tiff Macklem reiterated policy makers may withdraw monetary stimulus as the nation’s economy recovers.

The loonie, as the currency is nicknamed, strengthened from almost a one-month low amid increased demand for riskier assets after the European Central Bank maintained its benchmark interest rate at a record-low 0.75 percent after a policy meeting. Crude oil, the nation’s largest export, increased for the first time in three days. Canadian employment data will be released tomorrow after the measure rose faster than economists forecast in August.

“The loonie is coming back from the dead after a few rough sessions, as we sold off too far too fast,” said Steve Butler, director of foreign-exchange trading in Toronto at Bank of Nova Scotia (BNS)’s Scotia Capital unit. “The very hawkish comments by the deputy governor have helped as he reiterated that the Bank of Canada still prefers higher rates.”

Canada’s currency appreciated 0.7 percent to 98.04 cents per U.S. dollar at 5:09 p.m. in Toronto. It touched 98.84 cents yesterday, the weakest level since Sept. 6. One Canadian dollar buys $1.02.
Crude-oil futures gained 4 percent to $91.71 a barrel in New York, after reaching a two-month low yesterday.

Stronger Tone

Government bonds fell, pushing the yield on the 10-year government security up four basis points, or 0.04 percentage point, to 1.76 percent. The 2.75 security maturing in June 2022 lost 40 cents to C$108.76.
The Bank of Canada will sell C$2.7 billion of three-year notes on Oct. 10. The debt matures in February 2016.

Canada’s Ivey purchasing managers’ index fell a second month in September, staying at a level that indicates business and government expenditures advanced.
The index fell to 60.4 in September on a seasonally adjusted basis from 62.5 in August, according to a statement today from the business school of Western University in London. Readings greater than 50 indicate purchasing advanced, and the index has exceeded that mark since July.

“The Positive Canadian data this morning has helped the loonie and the Bank of Canada is still talking about the potential need to remove stimulus, which is helping to support the currency,” Matthew Perrier, Toronto-based director of foreign exchange at Bank of Montreal (BMO), said in a phone interview. “All eyes will be on tomorrow’s employment data to give us further direction.”

Bank Rate

The central bank’s benchmark interest rate has been 1 percent for more than two years, the longest pause since the 1950s. The central bank has indicated since April it may raise rates, and in July forecast the economy may reach full capacity in the second half of next year.
Other Group of Seven central bankers have added new stimulus this year to combat flagging growth, including extraordinary asset purchases by the Federal Reserve to reduce unemployment stuck above 8 percent.

“To the extent that the economic expansion continues and the excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate,” Macklem said in the text of a speech he’s giving today in Winnipeg, Manitoba.
Canada has gained 339,000 jobs since recouping the 430,000 jobs lost in the last recession, Macklem said.

Jobs Data

Canadian employers added 10,000 jobs last month, compared with 34,300 the previous month, according to a Bloomberg News survey of 24 economists. The jobless rate is projected to hold at 7.3 percent.
U.S. employers added 115,000 jobs in September and the nation’s jobless rate advanced to 8.2 percent from 8.1 percent, according to surveys of economists before the Labor Department report tomorrow.
Canadian Finance Minister Jim Flaherty said today he doesn’t think there is a bubble in Canada’s housing market.

Realtors in Toronto, Canada’s largest city, reported yesterday that sales fell 21 percent in September from a year earlier, while Vancouver realtors said sales were down 33 percent on the same basis there.
Canada’s dollar has gained 1.9 percent this year against nine developed-nation counterparts tracked by Bloomberg Correlation-Weighted Currency Indexes. The greenback has dropped 2.7 percent.

To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Joseph Ciolli in New York at jciolli@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net