Canadian Currency Gains Against Most Major Counterparts on Review of Spain

Canada’s dollar rose against most of its major counterparts after Moody’s Investors Service said it’s reviewing Spain’s debt rating for a possible cut, rekindling concern the euro region’s debt crisis will spread.

The Canadian currency, known as the loonie for the bird on its one-dollar coin, approached the strongest level in three months against the euro, which fell versus most of its peers. The loonie strengthened versus the greenback as the U.S. Senate passed a tax-cut plan to spur economic expansion in Canada’s biggest trade partner. It rose the most in six months versus the Australian dollar, while the U.S. dollar gained against most major currencies.

“It’s a euro move more than anything -- it’s the elephant in the room for the foreign-exchange market,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit in Toronto. “As growth expectations are wound up in the U.S., there’s a spillover effect in the Canadian dollar.”

Canada’s currency climbed as much as 1.5 percent against the euro, the biggest intraday gain in three weeks, to C$1.3260 before trading at C$1.3279 at 5 p.m. in Toronto, up 1.4 percent from C$1.3461 yesterday. It reached C$1.3206 per euro on Dec. 2, the strongest level since Sept. 14.

The loonie appreciated 0.2 percent to C$1.0046 per U.S. dollar, from C$1.0062 yesterday. It touched C$1.001, the strongest level since it last traded at parity with the greenback on Nov. 11.

Australian Dollar

The Canadian dollar rose versus its Australian counterpart for the first time in five days after BNP Paribas SA recommended selling the Aussie in favor of Canada’s currency. The loonie climbed as much as 1.7 percent, the biggest intraday jump since June 7, to 98.80 cents per Australian dollar, strengthening past parity from C$1.0052 yesterday.

The loonie, nicknamed for the image of the waterfowl on the C$1 coin, gained after Canadian factory sales and U.S. industrial production both increased more than forecast.

“The anticipation of tax cuts as well as positive data” boosted the Canadian dollar versus the greenback, Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York, said via e-mail.

The U.S. Senate passed the $858 billion tax-cut deal, giving bipartisan endorsement to an agreement crafted by President Barack Obama and Republicans that extends Bush-era reductions for all income levels. The 81-19 vote sent the bill to the House, where Democratic leaders were likely to bring it to the floor tomorrow.

Government bonds rose, pushing the benchmark Canadian 10- year note’s yield down two basis points, or 0.02 percentage point, to 3.33 percent. It touched 3.37 percent yesterday, the highest since June 21. The price of the 3.5 percent security due in June 2020 gained 12 cents to C$101.40.

Bond Sale

Canada auctioned C$3 billion ($2.98 billion) of two-year notes, drawing an average yield of 1.787 percent. The government received bids of C$6.9 billion for the 1.75 percent securities, which mature in March 2013, according to a statement today on the Bank of Canada’s website.

As European Union leaders prepared to start a two-day summit in Brussels tomorrow with the focus on a permanent crisis-fighting system to be introduced in 2013, Moody’s said Spain’s credit rating may be cut from Aa1. The government is readying its final bond sale of the year tomorrow amid concern it may follow Greece and Ireland in seeking a bailout.

Canadian factory sales rose 1.7 percent to C$45.5 billion in October, more than anticipated, Statistics Canada data showed today. The increase was led by gains for petroleum, metals and automobiles. Economists in a Bloomberg News survey predicted a 1 percent gain.

U.S. Factories

Industrial production in the U.S. increased more than forecast in November, signaling factories will support economic growth into next year. Output at factories, mines and utilities rose 0.4 percent, the biggest gain since July, figures from the Federal Reserve showed. Economists estimated a 0.3 percent gain.

The U.S. consumer-price index increased 0.1 percent last month after a 0.2 percent rise the prior month, the Labor Department said today. The core measure, which excludes food and energy costs, also rose 0.1 percent, matching the forecast.

The Canadian dollar has appreciated 4.2 percent this year in a measure of 10 developed-nation currencies, Bloomberg Correlation-Weighted Currency Indexes showed. The Australian dollar climbed 9.8 percent, while the greenback fell 1.2 percent and the euro tumbled 9.6 percent.

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

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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