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Canadian Dollar Strengthens as Stocks and Crude Oil Prices Make Gains
The Canadian dollar gained versus the U.S. dollar as stocks and crude oil gained, boosting demand for commodity-linked currencies.
The loonie, as the currency is nicknamed, gained for a third day as two other growth-sensitive currencies, the Australian and New Zealand dollars, strengthened versus the greenback. The Canadian dollar declined earlier on signs of a slowdown in the global economy, which had some investors paring positions in higher-yielding assets.
“The market is bid for risk and as a result of the strong correlation between stocks and currencies, the Canadian dollar is rising,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto.
The currency strengthened 0.5 percent to C$1.0525 per U.S. dollar at 4:03 p.m. in Toronto after touching C$1.0649. It closed at C$1.0579 yesterday and two days ago touched C$1.0668, the lowest level since July 6. One Canadian dollar buys 94.82 U.S. cents.
The MSCI World Index, a gauge of equities in developed nations, added 1.2 percent. The Standard & Poors 500 index gained 1.7 percent. Crude for October delivery rose 2.8 percent to $75.39 a barrel on the New York Mercantile Exchange.
Weekly Loss
The loonie was headed for a loss this week, making it the weakest along with the Mexican peso and South Korean won among the U.S. dollar’s 16 most-traded counterparts. The Swedish krona and the New Zealand dollar are gainers during the past five sessions before reports next week on U.S. payrolls and Canadian gross domestic product.
U.S. Treasuries tumbled as Federal Reserve Chairman Ben S. Bernanke said the central bank will provide additional stimulus as needed, reducing speculation that it would step up bond buying. Bernanke said the “preconditions” for economic growth in 2011 are “in place.”
Government bonds fell, pushing the two-year bond yield up 6 basis points, or 0.06 percentage point, to 1.31 percent. U.S. Treasuries also fell as a report showed the U.S. economy slowed in the second quarter less than analysts forecast.
Canada will auction C$1.4 billion ($1.3 billion) of 30-year bonds on Sept. 1, a statement on the Bank of Canada’s website said. The 4 percent securities mature in June 2041.
Slower Growth
Economic growth in the U.S. slowed to a 1.6 percent annual pace in April through June, compared with the 2.4 percent rate projected last month, the Commerce Department reported. The median forecast of 81 economists in a Bloomberg News survey was for a 1.4 percent expansion. The world’s largest economy grew 3.7 percent in the first quarter.
Canadian commodity producers are investing at the fastest rate since 2007, a signal resource companies will provide a floor to slowing economic growth as homebuyers and consumers show signs of restraint.
Capital expenditure by commodity producers on the Standard & Poor’s/TSX Composite Index was up 43 percent from a year earlier in their latest quarterly filings, according to data compiled by Bloomberg News. Spending by oil and gas companies surged 58 percent and mining companies spent 12 percent more, accounting for almost all the expenditure growth.
Business Spending
The data suggest commodity companies such as Potash Corp. of Saskatchewan Inc., which faces a hostile takeover by BHP Billiton Ltd., and Suncor Energy Inc. sustained growth even as the global outlook weakened. Investors look to companies to gauge the strength of recoveries because business investment contributed one quarter to one half of growth at the height of expansions over the past four decades, according to Statistics Canada.
“We continue to expect the Canadian dollar to rally in the medium term, based on interest-rate differentials, a relatively strong sovereign position, Canadian dollar-positive merger-and- acquisition activity, positive sentiment and a broadly weaker U.S. dollar,” Camilla Sutton, a Bank of Nova Scotia currency strategist in Toronto, wrote in a note to clients. “However, in the near-term as the outlook for the U.S. and global economic growth have decreased, so too has the outlook for a strong CAD.”
To contact the reporters on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net Mary Childs in New York at mchilds5@bloomberg.net
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