Canada Dollar Reaches Highest Since '76 on Optimism for Economy

Oct. 1 (Bloomberg) -- Canada's dollar rose to the highest in almost 31 years on speculation the U.S. economy will continue to expand, bolstering prospects for Canada's commodity exports.

The currency strengthened as investors bought stocks and higher-yielding assets after Citigroup Inc., the largest U.S. lender, said it expects ``a normal earnings environment'' in the fourth quarter and former Federal Reserve Chairman Alan Greenspan said the credit slump may be ending.

``The general feeling in the market is that the worst of the U.S. credit crisis is behind us,'' said Matthew Strauss, a senior currency strategist at RBC Capital Markets in Toronto. ``That's positive for the Canadian dollar and other commodity-based currencies.''

The currency traded $1.0089 at 4:11 p.m. in Toronto, reaching $1.0091 today, the highest since Nov. 22, 1976. The currency rose 6.3 percent in September, the biggest monthly advance since Bloomberg began tracking the data in February 1971. One U.S. dollar buys 99.12 Canadian cents.

Canadian stocks advanced for the sixth time in seven days.

The currency climbed to parity with the U.S. dollar on Sept. 20 as commodities recorded the biggest monthly gain in 32 years last month, led by wheat, crude oil and gold. Commodities account for about half of Canada's exports.

The 19-commodity Reuters/Jefferies CRB Index increased 8.1 percent last month, the most since July 1975.

Rise Against The Yen

The Canadian dollar rose to the highest in more than two months against the yen, increasing 1 percent as a rally in the global stocks encouraged carry-trade investors to borrow in Japan to buy higher-yielding assets elsewhere. The key benchmark interest rate in Japan is 0.5 percent against Canada's 4.50 percent.

Futures show hedge funds and large speculators reduced their bets on an advance in the Canadian dollar. Net long bets declined to 59,162 contracts during the week to Sept. 25, from a record 79,828 contracts the week before on the Chicago Mercantile Exchange, according to the Washington-based Commodity Futures Trading Commission. A long bet is one on an appreciating currency.

``After gaining so much in recent weeks, I wouldn't be surprised if the Canadian dollar takes a little breather,'' said Christian Dupont, a senior currency trader at Societe Generale SA in Montreal. ``Some speculative accounts seem to be positioning that way.''

The yield on Canada's benchmark 4.25 percent bond due in December 2009 was little changed at 4.07 percent. The price, which moves inversely to the yield, rose 1 cent to C$100.37.

To contact the reporter on this story: Haris Anwar in Toronto at hanwar2@bloomberg.net

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