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Loonie Increases to a One-Week High After Increase in U.S. Home Sales
Canada’s dollar reached the highest level in more than a week versus the greenback as gains in U.S. stocks supported demand for currencies tied to economic growth.
The Canadian currency strengthened for a third day as equities gained after a report showed new home sales in the U.S. beat estimates. Home purchases in the U.S. increased 24 percent in June to an annual pace of 330,000, a report from the Commerce Department showed today.
“Looks like people are happy to take on risk as we begin the week,” said John Curran, a Toronto-based senior vice president at CanadianForex Ltd., an online foreign-exchange dealer.
The Canadian currency, nicknamed the loonie, climbed as much as 0.5 percent to C$1.0303 per U.S. dollar, the strongest level since C$1.0284 on July 15, before trading at C$1.0319 at 5:06 p.m. in Toronto. The loonie closed at C$1.0358 on July 23. One Canadian dollar buys 96.91 U.S. cents.
The Standard & Poor’s 500 Index gained 1.1 percent. Global package-delivery companies FedEx Corp. and United Parcel Service Inc. lifted earnings forecasts. Both are considered harbingers for global growth.
Futures on crude oil were little changed at $78.99 a barrel after reaching $79.30 a barrel on July 22, the highest level on a closing basis since May 5.
The Canadian dollar tends to rise and fall with commodity prices as a proxy for risk appetite. Canada’s currency is 82 percent correlated to movements in crude and 91 percent correlated to swings in the S&P 500, according to Bloomberg data. A 100 percent correlation would mean the measures move in lockstep.
Rates Favor Loonie
Bank of Canada Governor Mark Carney on June 1 became the first Group of Seven central banker since July 2008 to lift borrowing costs, increasing the benchmark rate to 0.5 percent. Carney raised the target rate for overnight loans between commercial banks to 0.75 percent on July 20.
“Expect interest-rate differentials to favor the Canadian dollar,” Dean Popplewell, an analyst at online currency-trading firm Oanda Corp. in Toronto, said in an e-mail. “Technically the currency is looking to close higher as long as we close below this C$1.0424 level.”
The Federal Reserve left its key rate at virtually zero last month and renewed a pledge to keep it low for an “extended period.” Minutes of the June 22-23 session, released July 14, show officials saw no need to boost stimulus, while paring their growth forecasts and noting risks to the recovery had increased.
The Canadian 10-year note’s yield was unchanged at 3.23 percent.
Foreign-Exchange Increases
The average daily turnover of foreign exchange, which includes spot transactions, outright forwards and foreign exchange swaps, increased 9.4 percent to $57 billion in April, compared with $52.1 billion in October, according to the Canadian Foreign Exchange Committee. April’s turnover totaled $1.2 trillion, compared with $1.1 trillion in October.
On an average daily basis, the volume of spot and outright forwards increased by 33 percent and 20 percent, the committee’s Foreign Exchange Volume Survey said today. Foreign exchange swaps decreased 1 percent.
“We are coming off a post-crisis stage,” Firas Askari, head currency trader in Toronto at Bank of Montreal’s BMO Capital Markets, said. “You would expect to see an uptick as markets see a semblance of improvement.”
The Canadian Foreign Exchange Committee, chaired by the Bank of Canada, surveys senior representatives from eight of the nation’s largest banks in April and October each year to provide information on the size and structure of Canada’s foreign- exchange market.
To contact the reporters on this story: Alex Kowalski in New York at akowalski13@bloomberg.net; Chris Fournier in Montreal at cfournier3@bloomberg.net
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