Canadian Dollar Best Performer Among Major Currencies on U.S. Resilience
Canada’s dollar gained against all of its most-traded counterparts after a government report showed orders for American durable goods rose in July more than economists forecast.
The loonie, as the Canadian dollar is also known, fluctuated versus the greenback before an Aug. 26 address by Federal Reserve Chairman Ben S. Bernanke in Jackson Hole, Wyoming. Trading patterns show the Canadian currency may decline as much as 5 percent in the next two weeks, according to Bank of America Merrill Lynch.
“So much depends on Bernanke,” said Camilla Sutton, chief currency strategist at Bank of Nova Scotia’s Scotia Capital, by phone from Toronto. “Without that risk in the market, we would have a weaker Canadian dollar.”
The Canadian currency was little changed at 98.71 cents per U.S. dollar at 5 p.m. in Toronto, compared with 98.74 cents yesterday. One Canadian dollar purchases $1.0131.
The Canadian dollar rose against the commodity-linked Australian and New Zealand currencies as durable goods indicated resilience in the U.S., Canada’s biggest trading partner.
Bookings for American goods meant to last at least three years rose 4 percent in July, the most in four months, after falling a revised 1.3 percent in the prior month, a Commerce Department report showed today. The median projection of 81 economists in a Bloomberg News survey was for a 2 percent gain in orders for durable goods.
Drop in Bonds
Government bonds fell, pushing the yield on two-year debt up five basis points, or 0.05 percentage point, to 1 percent in a fourth consecutive increase. The price of the 2 percent security maturing in August 2013 declined 11 cents to C$101.91. The yield fell on Aug. 9 to 0.78 percent, the lowest level in Bloomberg records dating to 1989.
The loonie has traded within a two-cent band of 99.69 cents to 97.67 cents from Aug. 10 through today as investors await Bernanke’s address.
“The Canadian dollar is contained to a very narrow range,” said Blake Jespersen, director of foreign exchange in Toronto at Bank of Montreal’s BMO Capital Markets unit, in a phone interview. “There is very good buying of the Canadian dollar around the 99 cent level, and we see good support at 98.50,” said Jespersen, referring to an area where buy orders may be clustered.
Loonie Versus Euro
“Short euro-Canada dollar is your best trade at the moment,” said Jespersen, meaning sell euros and buy loonies. The loonie appreciated 0.2 percent to C$1.4229 against the euro, from C$1.4263 yesterday. A short is a bet an asset may decline.
Trading patterns indicate Canada’s dollar is poised to drop against the greenback after staying “remarkably stable” during the recent market turmoil, according to MacNeil Curry, head of currency technical strategy at Bank of America in New York.
The Canadian currency may break from its “contracting triangle” pattern and decline to C$1.0389 versus the U.S. dollar, from the 98.74 cent closing price yesterday, Curry wrote today in a research note to clients. Such a move would represent a loss of about 5 percent.
Elliott Wave Theory, created by the U.S. market analyst Ralph Elliott in 1938, attempts to predict future price moves by dividing past trends into sections, or waves, and calculating changes in value. In a contracting triangle, the first wave is the longest while the fifth wave is the shortest.
Canada’s currency has already declined 4.3 percent from a three-year high of 94.07 cents reached July 26, weakening on concern the global recovery is losing momentum.
A “double bottom” pattern has formed as the currency approached 94 cents twice and was rebuffed, meaning the previous support level of 97.69 for the U.S. dollar has become a resistance level, with the pair targeting a range of C$1.0270 to C$1.0389, Curry wrote.
The Standard & Poor’s 500 Index gained 1.3 percent today after yesterday’s 3.4 percent rally. The S&P/TSX Composite Index was little changed. Futures on crude oil, Canada’s biggest export, fell 0.2 percent to $85.25 a barrel in New York.
Bernanke is preparing for an address later this week at a conference in Jackson Hole, where he indicated in August 2010 that the central bank “will do all that it can” to ensure a continuation of the economic recovery and that more securities purchases might be warranted if growth slows.
Two months later, the Fed announced a $600 billion second round of U.S. debt buying to support the recovery, a program that ended in June.
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