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Canadian Dollar Rebounds From 7-Week Low as Stocks and Crude Oil Rise
Canada’s dollar rebounded from the weakest level in almost two months as stocks rose from the day’s lows, crude oil climbed and traders suggested recent declines were overdone.
“There will likely be some good support for the Canadian dollar under this market,” Aaron Fennell, a futures and currency broker at Lind-Waldock, a unit of MF Global Canada, wrote in an e-mail. “I think the break below 94 cents got some of the range traders off the sidelines and into the market.”
One Canadian dollar purchased 94.38 U.S. cents in Toronto after slipping to 93.74 cents, the least since July 6. The currency rose 0.2 percent to close at C$1.0596 per U.S. dollar. It closed yesterday at C$1.0615.
The loonie, as the currency is sometimes known, earlier dropped as risk aversion drove global stocks lower and weakened the outlook for currencies tied to growth. It’s down 0.8 percent this year. A faltering economic recovery means the chances for further Bank of Canada interest-rate increases in 2010 are diminishing, dimming the currency’s appeal.
“It feels a little as if the impetus for higher rates in Canada beyond September is perhaps fading a little more,” Shaun Osborne, chief currency strategist in Toronto at Toronto- Dominion Bank’s TD Securities unit, wrote in an instant message.
Stocks Bounce
The MSCI World Index, a gauge of equities in 24 developed nations, fell 0.4 percent after being down earlier as much as 1.4 percent. Movements in the loonie are 74 percent correlated to fluctuations in the MSCI World, according to Bloomberg four- week data. That’s down from a high this year of 88 percent on July 26. A correlation of 100 percent would mean the measures move in lock-step.
Crude oil for October delivery rose 1.2 percent to $72.49 a barrel after falling as much as 1.2 percent on the New York Mercantile Exchange. Crude is Canada’s biggest export.
Bank of Canada policy makers next meet on Sept. 8, after raising interest rates by a quarter-percentage point to 0.75 percent on July 20, the second increase in two months. They have two more meetings this year, in October and December.
Osborne said he believes the central bank will raise interest rates at the September meeting. He predicted the loonie will head toward C$1.0775 if it trades above C$1.0675.
Interest-Rate Odds
Derivatives markets are “pricing in lower probabilities of future interest-rate hikes yet again,” Olga Dadabayeva, an currency analyst at Canadian Imperial Bank of Commerce, wrote in a note to clients, citing a 45 percent chance of a 25 basis point increase at next month’s meeting, and 5 percent for the October meeting.
The loonie has gained 3.5 percent this year, Bloomberg Correlation-Weighted Currency Indices showed, the fourth-best performance among its 10 developed world counterparts behind the yen’s 16 percent increase, the 4.8 percent gain in the Swiss franc and the greenback’s 4.3 percent appreciation.
Refuge currencies are gaining amid gathering signs of economic weakness. U.S. durable-goods orders increased 0.3 percent last month, compared with the median estimate for a 3 percent gain by 75 economists in a Bloomberg survey. Purchases of new homes in the U.S. last month fell 12 percent from June to an annual pace of 276,000, the weakest since government data began in 1963. Standard & Poor’s cut Ireland’s credit rating one step to AA-.
Profits Fall
Canada’s business profits fell 1.8 percent in the second quarter from the previous three-month period, the first decline in four quarters, government figures showed today.
Some segments of the nation’s economy are still gaining. Canadian home prices rose 1.5 percent in June, the biggest advance in 10 months, the Teranet-National Bank Composite House Price Index showed. The index tracks home-price changes in six Canadian cities -- Halifax, Montreal, Ottawa, Toronto, Calgary and Vancouver.
Yields on Canadian corporate debt touched the lowest in at least 18 years as concern that the global economic recovery is flailing roils financial markets, driving government benchmark rates lower.
The yield to maturity on a broad index of investment-grade corporate debt fell to 3.626 percent yesterday, the lowest since June 1992, when Bank of America Merrill Lynch data begins. Yields reached 6.18 percent in October 2008, the highest in more than six years, as the worldwide credit crunch took hold.
Canadian government bonds rose, driving the 10-year’s yield as low as 2.772 percent, the weakest since April 2009 before trading at 2.829 percent, up 1 basis point or 0.1 percentage point.
Canada auctioned C$400 million ($376 million) of 30-year real-return bonds, drawing a median yield of 1.29 percent. The government received bids of C$898 million for the 1.5 percent inflation-indexed securities maturing in December 2044, according to a statement on the Bank of Canada’s website.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
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