Canadian Dollar Snaps Five-Day Losing Skid as Hurricane Lands

By Katia Dmitrieva - 2012-10-30T18:44:47Z

 

Canada’s dollar strengthened against its U.S. peer, ending a five-day losing streak, after manufacturers’ prices rose for the first time since April as Hurricane Sandy slammed into the Eastern U.S.
The currency, which traded below parity yesterday for the first time in more than two months, strengthened as U.S. stock and bond markets remained closed for a second day. Canada’s dollar gained along with global stocks on increased appetite for risk. U.S. equity markets will reopen tomorrow after the longest weather-related closure in more than a century.

“With the U.S. market closed, attention shifts back to Europe, global growth and headline risk,” Mazen Issa, Canada macro strategist at Toronto-Dominion Bank (TD)’s TD Securities, said in a phone interview from Toronto. “Looking at markets overseas will have a moderate effect on the Canadian dollar, which is why we’re up slightly.”

The loonie, as the currency is nicknamed for the waterfowl on the C$1 coin, rose 0.1 percent to parity with the U.S. dollar at 2:39 p.m. in Toronto. It closed below that level yesterday for the first time since Aug. 6. The currency is down 1.6 percent this month.
The Stoxx Europe 600 Index (SXXP) advanced 0.9 percent while oil, Canada’s largest export, was little changed.

The industrial product price index of finished-goods prices rose 0.5 percent in September, the fastest in a year, Statistics Canada said today from Ottawa. Economists predicted a 0.2 percent increase, according to the median estimate in a Bloomberg survey with 12 responses.

Prices Rise

Bank of Canada Governor Mark Carney testifies to the House of Commons Finance Committee at 3:30 p.m. in Ottawa. The central bank last week whipped markets between positive and negative growth sentiment as Carney said the need for higher interest rates has become “less imminent” a day after strengthening the case for tightening monetary policy.

As a result, “there is significant Canadian dollar risk on a day when liquidity is low,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia (BNS) in Toronto, said in a note to clients.
The Canadian dollar may weaken further in the short-term, Sutton said, on a downward shift in near-term drivers of the currency, including weaker-than-forecast global earnings weighing on growth sentiment, Canada’s decision yesterday to cut the 2013 growth outlook to 2 percent, and the negative economic impact of Hurricane Sandy in the U.S.

‘Bullish’ View

After closing past both the 100-day and 200-day moving averages this week, the loonie may test C$1.0232, its July 25 low, Sutton said. The Canadian dollar should strengthen once the early November risk of elections have passed.
“We have made no change to our medium-term bullish Canadian dollar view,” she said.
Canadian bonds advanced, pushing the yield on the 10-year benchmark notes down one basis point, or 0.1 percentage point, to 1.80 percent. The 2.75 percent note rose 7 cents to C$108.35.

Investors should reduce holdings of fixed-income securities with yields probably having reached bottom and equities set to rally as growth in North America recovers, according to BlackRock Inc. (BLK)
The largest money manager in the world foresees a shift back to a 40 percent fixed-income and 60 percent equity allocation by individual investors, in line with historical averages, reversing record bond inflows this year as a recovery in North America triggers a revival in stock markets.

Bloomberg Correlation-Weighted Indexes shows the loonie is up 0.2 percent this year against nine developed-nation currencies. The greenback has dropped 2.1 percent, among the top three decliners along with the yen and euro.

To contact the reporter on this story: Katia Dmitrieva in Toronto at edmitrieva1@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net