Canadian Currency Climbs as Stocks Rally, Potash Receives Takeover Offer

Canada’s dollar strengthened against all 16 of its most-traded counterparts as global stocks rallied and Potash Corp. of Saskatchewan Inc. received a $39 billion purchase offer, boosting demand for growth assets.

“The sheer scale raises eyebrows,” David Watt, senior currency strategist at Royal Bank of Canada, the nation’s biggest bank, wrote in an e-mail. “That someone is prepared to dump that much change in a commodity-linked deal is having spillover effects on risk sentiment and other commodity currencies, though the Canadian dollar holds the lead.”

The currency appreciated the most against the U.S. dollar since July 22 as crude oil, Canada’s biggest export, traded higher than $76 a barrel.

The Canadian dollar, nicknamed the loonie for the image of the aquatic bird on the one-dollar coin, gained as much as 1.2 percent to C$1.0309 per U.S. dollar before trading at C$1.0330 at 4:29 p.m. in Toronto. It closed yesterday at C$1.0434, and reached a three-week low of C$1.0494 on Aug. 12. One Canadian dollar buys 96.81 U.S. cents.

Saskatoon-based Potash, the world’s largest fertilizer producer, rejected the unsolicited takeover proposal from BHP Billiton Ltd. as too low, prompting speculation about a higher bid. Potash said the $130-a-share offer from the Australian- based resources company was “grossly inadequate” and adopted a shareholder-rights plan as a defense.

The bid is “contributing to Canadian-dollar outperformance,” Sacha Tihanyi, a currency strategist in Toronto at Bank of Nova Scotia’s Scotia Capital, wrote in an e- mail. “It puts a bit of short-term speculative fire under the Canadian dollar, which may not have been there absent the news.”

‘Mighty Petro-Currency’

Canada’s annual trade surpluses of between C$45 billion ($43.6 billion) and C$65 billion between 1999 and 2008 helped transform the nation’s currency from “commodity bumpkin to mighty petro-currency,” RBC’s Watt wrote.

A successful bid for Potash would trigger “significant buying” of the Canadian dollar, enough to cover as much as six months’ worth of Canada’s historic trade balance, Citigroup Inc. analysts said.

BHP’s offer means “the Canadian dollar and the Canadian resource sector retain some attractiveness to investors despite the downturn in global investor optimism,” Steven Englander, a New York-based strategist at the bank, wrote in an e-mailed note to clients today.

Stocks Climb

The MSCI World Index, a gauge of equities in 23 developed nations, gained 1.2 percent and the Standard & Poor’s 500 Index climbed 1.2 percent. September contracts for crude oil climbed as much as 1.9 percent to $76.63 a barrel on the New York Mercantile Exchange. The loonie tends to rise and fall with stocks and commodity prices.

“We’ve got equities that are up and tensions that have been building through the global financial system have certainly eased,” Watt said in a separate telephone interview. “That’s given a fillip to all risk-sensitive securities.”

Manufacturing sales unexpectedly rose 0.1 percent in June, after a revised 0.5 percent gain the month before, Statistics Canada said today in Ottawa. Economists had anticipated a 0.5 percent decline, according to a Bloomberg survey.

Foreign investors added to purchases of Canadian bonds for an 18th straight month, the longest streak since at least 1988, as increased concern the global recovery is faltering drove demand for safety.

International investors in June bought a net C$6.96 billion of Canadian bonds, Statistics Canada said today in a separate statement. The last time foreigners sold more of the nation’s bonds than they bought was in December 2008.

Canadian Bonds

The yield on Canada’s benchmark 10-year bond rose 4 basis points, or 0.04 percentage point, to 2.96 percent as the price of the 3.5 percent security maturing in June 2020 dropped 31 cents to C$104.60. The yield touched 2.92 percent yesterday, the lowest intraday level since April 23, 2009.

Canada’s annual inflation rate accelerated in July, with the consumer price index rising 1.9 percent from a year earlier, compared with 1 percent in June, Statistics Canada will probably report on Aug. 20, according to the median estimate of 19 economists surveyed by Bloomberg.

“One of the things that we’re going to be focusing on for the Canadian dollar is CPI data on Friday,” Royal Bank of Canada’s Watt said. “There’s a strong possibility that the market might misread it, because the headline number might be above expected, although it’s going to be largely due to the HST,” he said, referring to the harmonized sales tax.

Ontario and British Columbia, two of Canada’s three largest provinces, merged their sales tax with the existing federal levy on July 1, making some goods and services taxable for the first time. The Bank of Canada estimated last month the shift will boost the annual inflation rate by 0.6 percentage points during 12 months.

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

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