Loonie Strengthens as China, ECB Speculation Ease Investor Risk Aversion

Canada’s dollar rose as manufacturing gains in China and speculation the European Central Bank may signal its willingness to act to prevent the spread of the region’s debt crisis reduced risk aversion among investors.

The loonie rose as crude oil, Canada’s largest export, and global equities rallied. A Statistics Canada report on Dec. 3 may show employers added jobs in November.

“Data from China helped the risk mood,” Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc., a unit of Canada’s second-largest bank, wrote in an e-mail. “The U.S. dollar is lower, the euro is a little higher, spreads are in a tad and equities are up. The world is a happier place.”

The Canadian currency appreciated 0.9 percent to C$1.0170 per U.S. dollar at 5 p.m. in Toronto, compared with C$1.0264 yesterday. One Canadian dollar buys 98.33 U.S. cents.

The loonie, as Canada’s dollar is sometimes known for the image of the aquatic bird on the dollar coin, will trade at par versus the greenback by the end of June, according to the median of 29 forecasts in a Bloomberg survey.

Government bonds fell, with benchmark 10-year yields rising 11 basis points to 3.17 percent. The price of the 3.5 percent security due June 2020 dropped 95 cents to C$102.65. A basis point is 0.01 percentage point.

European Stance

ECB President Jean-Claude Trichet said yesterday in Brussels he didn’t believe the region’s financial stability was in question and signaled more bond purchases were possible. European equities and U.S. stock-index futures advanced.

“I cannot think that anything the ECB says or does Thursday will provide anything more than fleeting support for the peripheral markets,” said TD’s Osborne, ranked most- accurate currency forecaster in a July Bloomberg survey of 48 forecasters of eight currency pairs in the prior 18 months.

China’s Purchasing Managers’ Index rose to 55.2 from 54.7 in October, China’s logistics federation said on its website. That was more than the 54.8 median estimate of 14 economists surveyed by Bloomberg News.

The MSCI World Index, a gauge of equities in developed nations, rose as much as 2.2 percent, the most on an intraday basis since Nov. 4. Crude oil futures gained 3.2 percent to $86.81 a barrel.

Canadian employers added 19,800 more positions to payrolls than they cut, after a net gain of 3,000 in October, Statistics Canada is likely to say on Dec. 3, according to the median of 24 forecasts in a Bloomberg survey.

Canada auctioned C$700 million ($689 million) of 30-year real-return bonds, drawing a median yield of 1.07 percent. The government received bids of C$1.4 billion for the 1.5 percent inflation-indexed securities maturing in December 2044, according to a statement today on the Bank of Canada’s website.

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

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

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