Canadian Dollar Gains to Highest in Two Weeks on Risk Appetite

By Chris Fournier

Nov. 3 (Bloomberg) -- Canada's currency rose to the highest in two weeks as risk appetite increased amid narrowing money- market spreads and forecasts for lower interest rates worldwide.

The Canadian dollar strengthened versus the 16 most-actively traded currencies today. It has increased 7.9 percent since Oct. 24, paring its decline this quarter to 10 percent.

``There's a little bit more greed and a little bit less fear,'' said John Rothfield, Banc of America Securities LLC senior currency strategist in San Francisco. ``Some markets have bottomed out and some of the credit markets have unclogged. Some of the risk-reduction bid for the U.S. dollar is going away.''

Canada's currency, dubbed the loonie for the aquatic bird on the one-dollar coin, climbed as much as 2.4 percent to C$1.1836 per U.S. dollar, from C$1.2125 on Oct. 31. It reached C$1.1744 on Oct. 20. Canada's dollar traded at C$1.1859 at 2:28 p.m. in Toronto. One Canadian dollar buys 84.32 U.S. cents.

Rothfield predicts the loonie may appreciate to as high as C$1.10 ``if we return to more risk-neutral levels over the next month or so.''

The London interbank offered rate, or Libor, that banks charge one another for three-month U.S. currency loans, slid to the lowest since the Sept. 15 collapse of Lehman Brothers Holdings Inc.

`A Little Better'

``The market seems to be feeling a little better,'' said Steven Butler, director of foreign-exchange trading at Scotia Capital Inc. in Toronto. ``After a wild two weeks, I think the Canadian dollar may have been a little oversold.''

The price of crude oil, which accounts for a tenth of Canada's export revenue, has dropped by more than half since reaching a record $147.27 a barrel on July 11. Canada's dollar has weakened 15 percent since then.

``With commodity prices sharply lower, a great deal of bad news for the Canadian dollar may be priced in over the short term,'' Scotia Capital's Sacha Tihanyi wrote in a note. The Toronto-based currency strategist predicted the loonie could appreciate to C$1.10 in six months.

Canada's dollar rose 3.2 percent versus the euro, 3.9 percent against the British pound and 0.9 percent versus Australia's dollar today. Economists polled by Bloomberg News predicted the European Central Bank, the Bank of England and the Reserve Bank of Australia will cut borrowing costs this week.

Lower borrowing costs ``should take the steam out of those currencies,'' said Tyson Wright, senior currency trader at Custom House in Victoria, British Columbia. Recent declines in Canada's dollar were ``overdone. The Canadian dollar should strengthen this week if credit concerns continue to abate.''

The two-year government bond's yield fell 1 basis point, or 0.01 percentage point, to 2.02 percent. The price of the 2.75 percent security due in December 2010 added 1 cent to C$101.50.

The 10-year note's yield rose 4 basis points to 3.80 percent. The price of the 4.25 percent security maturing in June 2018 fell 30 cents to C$103.65.

The 10-year bond yielded 178 basis points more than the two- year security. The so-called yield curve is the steepest since May 2004.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

Last Updated: November 3, 2008 14:31 EST

Australia Dollar Extends Decline as Central Bank Slashes Rates

By Candice Zachariahs

Nov. 4 (Bloomberg) -- The Australian dollar extended declines after the Reserve Bank of Australia cut interest rates by more than economists estimated, reducing investor appetite for higher-yielding assets. New Zealand's currency also fell.

Australia's dollar slid to 66.69 U.S. cents as of 2:45 p.m., after trading at 67.17 cents just before the RBA announced the 0.75 percentage point cut to 5.25 percent at 2:30 p.m. It traded at 65.93 yen from 66.34 before the decision.

``The Aussie might come under downside pressure from the bigger rate cut,'' said Besa Deda, acting chief economist and strategist at St. George Bank Ltd. in Sydney, referring to the currency by its nickname. ``Clearly, international conditions, with further signs that China is slowing, are one of the key factors for the RBA to cut rates.''

Fifteen of 16 economists surveyed by Bloomberg News forecast a 50 basis-point cut, with one predicting 25 basis points. Today's decision follows a 1 percentage point reduction last month, the bank's biggest cut since May 1992 as the economy was emerging from a recession.

New Zealand's dollar declined 0.6 percent to 58.85 U.S. cents from 59.23 cents in Asia yesterday. It bought 58.20 yen from 58.81.

Australia's currency has plunged 28 percent against the dollar over the past three months and 36 percent versus the yen after the collapse of Lehman Brothers Holdings Inc. froze credit markets and prompted investors to dump higher-yielding assets on concern over a global recession. New Zealand's dollar is 19 percent and 27 percent lower versus the greenback and the yen, respectively.

U.S. Stocks

The currencies also declined after stocks in the U.S. fell on the worst contraction in manufacturing since 1982 and forecasts that the sagging economy will reduce profits. About 1 billion shares changed hands on the floor of the New York Stock Exchange, the slowest trading day since August. The S&P 500 lost 2.45 points, or 0.3 percent, to 966.3.

``For the Aussie to continue to recover the ground that was lost, particularly in the last couple of weeks, we would need to see stocks trading higher,'' said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp.

Australian government bonds advanced. The yield on the benchmark 1-year note dropped 16 basis points to 4.015 percent, according to data compiled by Bloomberg. The yield on 90-day bank bill futures fell to 4.47 percent from 4.95 yesterday.

New Zealand's two-year swap rate, a fixed payment made to receive floating rates, declined to 6.31 percent today from 6.34 yesterday.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

Last Updated: November 3, 2008 23:36 EST