Canadian Currency Rises for First Time in Four Weeks as Crude Oil Rallies

Canada’s dollar advanced for the first time in four weeks as evidence of a global economic recovery helped crude oil, the nation’s biggest export, rally to a two-year high.

The loonie trailed the currencies of fellow commodity producers Australia and Norway this week as reports showed Canada added fewer jobs in November than economists forecast and the U.S. unemployment rate unexpectedly rose. The Bank of Canada will refrain from increasing borrowing costs Dec. 7, according to all 12 economists in a Bloomberg News survey.

“Demand for Canadian-dollar assets has driven much of the recent strength,” Shane Enright, executive director at Canadian Imperial Bank of Commerce’s CIBC World Markets in Toronto, wrote via e-mail.

The Canadian currency appreciated 1.7 percent to C$1.0039 per U.S. dollar yesterday, from C$1.0213 on Nov. 26. It touched C$1.0003 yesterday, the strongest level since Nov. 11. One Canadian dollar buys 99.61 U.S. cents. The currency will weaken to C$1.07 by the end of the second quarter, Enright said.

Norway’s krone advanced 3.4 percent to 5.9523 against the dollar, while Australia’s dollar strengthened 3 percent to 99.31 U.S. cents.

The loonie will strengthen to a one-for-one basis against the U.S. dollar by the end of March, according to the median forecast in a Bloomberg News survey of 30 economists. The currency touched a level stronger than parity Nov. 5-11.

“Parity still feels like it will be sticky,” said CIBC’s Enright. “Our data this week has hardly been stellar.”

Jobs Reports

The currencies of Canada and Mexico, which on average ship about three-quarters of their exports to the U.S., were the only major counterparts of the greenback not to rise yesterday after jobs reports dimmed the outlook for interest-rate boosts.

Canadian employers added 15,200 jobs in November after an increase of 3,000 in the previous month, Statistics Canada said yesterday. The median forecast of 24 economists in a Bloomberg News survey was for a gain of 19,800. The unemployment rate unexpectedly dropped to 7.6 percent, from 7.9 percent.

U.S. payrolls expanded by 39,000, less than the most pessimistic projection of economists surveyed by Bloomberg News, after a revised 172,000 advance in the prior month, Labor Department figures showed. The jobless rate rose to 9.8 percent, the highest since April.

The gross domestic product of Canada, the world’s 10th- biggest economy, advanced at a less-than-forecast 1 percent annualized third-quarter pace after revised gains of 2.3 percent and 5.6 percent in the previous two quarters, Statistics Canada said Nov. 30. The median estimate of 26 economists in a Bloomberg News survey was for a 1.5 percent gain.

Interest-Rate View

Traders pared bets on the prospect for an increase in interest rates after the jobs reports. Yields on the March 2011 bankers’ acceptances contract, a gauge of expectations for short-term borrowing costs, dropped eight basis points, or 0.08 percentage point, to 1.45 percent.

So-called Bax contracts average about 20 basis points above the central bank’s overnight target, Bloomberg data since 1992 show. Hedge funds and money managers use the contracts to hedge against interest-rate exposure and make bets.

The Bank of Canada held its target lending rate at 1 percent in October after three successive increases of a quarter-percentage point beginning June 1, citing a weaker economic outlook for the U.S., Canada’s biggest trading partner.

The yield on Canada’s two-year government bonds fell four basis points to 1.63 percent this week after touching 1.72 percent two days ago, the highest level since Nov. 25. The price of the 1.5 percent security maturing in December 2012 rose 8 cents to C$99.75.

U.S. Yield Spread

Two-year bonds yielded 117 basis points more than the equivalent-maturity U.S. security yesterday. The yield advantage has narrowed from 121 basis points on Nov. 25, which was the biggest since January 2004.

Crude oil rallied this week as a report showed China’s manufacturing grew at the fastest rate in seven months. Oil got a boost as a drop in the greenback made commodities more attractive as an alternative investment.

January futures on crude oil increased 6.5 percent to $89.19 a barrel after touching $89.49, the highest level since October 2008. Canada derives about half its export revenue from raw materials including crude oil, copper, timber and wheat.

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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