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Canadian Dollar Advances Against Euro on Higher Crude Oil, Greece Concern

Canada’s dollar strengthened against the euro on an advance in crude oil prices and after Moody’s Investors Service cut Portugal’s long-term government bond ratings to junk.

The loonie, as the currency is also known, rose against 13 of its 16 most-traded peers as crude, Canada’s largest export climbed above $97 a barrel. The euro fell against most major peers on concern the European sovereign debt crisis is deepening.

“The underlying commodity movement certainly supports the loonie and the Portugal news is throwing some further weight on the euro,” said Brian Dolan, chief strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey.

The Canadian currency gained 0.5 percent to C$1.3903 per euro at 5 p.m. in Toronto, from C$1.3974 yesterday. The loonie dropped 0.2 percent to 96.34 cents per U.S. dollar, compared with 96.11 cents yesterday. One Canadian dollar buys $1.0380.

Crude oil futures rose added 2.1 percent to $96.90 a barrel in New York, after rising as high as $97.48 a barrel. Canada is the largest supplier of crude oil to the U.S., the world’s biggest economy.

Greek Concern

The loonie gained versus the 17-nation currency as Standard & Poor’s yesterday said the French plan for rolling over Greek debt would likely trigger a default rating. Banks that agree to exchange their Greek government bonds for new securities may incur impairment charges on debt maturing through June 2014 that they continue to hold, according to Moody’s Investors Service.

Moody’s cut Portugal’s ratings to Ba2 from Baa1. The outlook is negative. The reductions stem partly from “the growing risk that Portugal will require a second round of official financing before it can return to the private market,” Moody’s said today in a statement.

The Swiss franc and the greenback, traditional havens, were the top performers among the major currencies.

“The only thing supporting the Canadian dollar is that we do see a little bit of a rally in oil prices and that’s making it clearly more attractive,” said Kathy Lien, director of currency research at online trader GFT Forex in New York.

Yearly Performance

Canada’s currency has weakened 1.9 percent this year versus those of nine other developed-nation currencies tracked by the Bloomberg Correlation-Weighted Currency Indexes, making it the fourth-worst performer. The yen is down 5.7 percent, as is the greenback and sterling is off 2.8 percent.

“The warnings from S&P, as well as the warning from Moody’s this morning about how they’re not really satisfied with the Greek debt rollover plan proposed by France, really isn’t helping the markets,” said GFT’s Lien.

Canada’s dollar will weaken to 99 cents per U.S dollar by the end of March 2012, according to the median forecast of 39 economists and analysts surveyed by Bloomberg News.

“The market is a little bit less secure now about buying risk and the Canada dollar is considered to be a risk asset,” said Jane Foley, a senior currency strategist at Rabobank International in London. “There’re expectations that China could be hiking rates as soon as this weekend.”

Bond Returns

Canada’s government bonds have returned 2 percent this year, according to a Bank of America Merrill Lynch index.

The five-year note’s yield fell two basis point to 2.28 percent before tomorrow’s auction. The price of the 2 percent security maturing in June 2016 rose 10 cents to C$98.69.

Canada will auction C$3.5 billion of five year bonds tomorrow, according to a schedule on the Bank of Canada’s website. The 2.75 percent bonds will mature in September 2016. The previous auction of five-year bonds, on May 18, drew an average yield of 2.57 percent, and a bid-to-cover ratio of 2.59 times. The average coverage ratio during the past five auctions is 2.39 times, according to Bank of Canada data.

The European Central Bank will increase its benchmark rate to 1.5 percent on July 7 from 1.25 percent, according to all 54 economists surveyed by Bloomberg News. ECB President Jean-Claude Trichet last week reiterated that policy makers are in a state of “strong vigilance,” a phrase he has used before tightening monetary policy.

Jobs Reports

Canada’s economy added 15,000 jobs in June, after boosting payrolls by a net 22,300 positions in May, according to the median forecast of 23 economists surveyed by Bloomberg. Statistics Canada is due to report the data on July 8 at 7 a.m. in Ottawa. The jobless rate held at 7.4 percent, according to the survey.

U.S. payroll jobs climbed by 100,000 workers after a 54,000 increase in May that was the smallest in eight months, according to the median forecast of economists surveyed by Bloomberg News ahead of Labor Department data due July 8. The jobless rate held at 9.1 percent.

The fate of the Canadian dollar during the near term “depends on the data that comes out this week, what kind of a picture that paints for the U.S. and the global recovery,” said Gain’s Dolan. “The darker the picture the more the loonie has to lose, and the U.S. dollar to gain. There’s very little to suggest there’s been some sort of significant improvement in the U.S. recovery in the last few weeks.”

To contact the reporter on this story: Chris Fournier in Halifax, Nova Scotia at cfournier3@bloomberg.net

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

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