Canadian Currency Reaches Strongest in 3 Weeks on Boost in Demand for Risk

Canada’s dollar touched a three-week high as stocks and commodities such as crude oil gained on speculation a recovery in the U.S., Canada’s biggest trade partner, will resume.

The loonie, as Canada’s currency is often known, gained versus its U.S. counterpart after Federal Reserve Chairman Ben S. Bernanke indicated on Aug. 26 that the world’s largest economy isn’t weak enough to warrant immediate stimulus.

“Bernanke gave the market a little bit of calm and confidence, and obviously that’s carried over,” said Steve Butler, managing director of foreign-exchange trading at Bank of Nova Scotia’s Scotia Capital, by phone from Toronto. “It looks like we’re going to get a good start to the week. It’s just a matter of time before we turn the corner.”

The Canadian currency advanced 0.5 percent to 97.69 cents per U.S. dollar at 5 p.m. in Toronto, from 98.13 cents on Aug. 26. It touched 97.41 cents, the lowest level since Aug. 4. One Canadian dollar buys $1.0237.

The loonie slid to a level weaker than 99 cents per U.S. dollar four times last week yet closed weaker than that level only on Aug. 22, indicating the trend can’t be sustained and “there’s some demand for Canada on any weakness,” Butler said. The currency would need to close stronger than 97.25 cents “to really sustain some positive momentum this week,” he said.

The Canadian dollar extended gains after a report showed U.S. consumer spending climbed more than forecast in July, climbing 0.8 percent, the most since February. The median estimate of 74 economists surveyed by Bloomberg News called for a 0.5 percent increase. Canada ships about three quarters of its exports to the U.S.

‘Bullish Case’

“Given the tight range of the past few weeks and the failed breakout higher Friday morning, the move down late Friday and overnight has done serious damage to the bullish case for funds,” wrote Jack Spitz, managing director of foreign exchange in Toronto at National Bank of Canada, in a note to clients today. “Funds” refers to the U.S. dollar versus Canadian dollar exchange rate.

Canada’s economy was unchanged in the three months through June after expanding 3.9 percent in the first quarter, according to the median forecast of 23 economists in a Bloomberg News survey. The report from Statistics Canada is due Aug. 31.

Primary Market

Canada’s dollar rose to a three-year high of 94.07 cents on July 26 before plunging to below parity on Aug. 9 on mounting concern the U.S. economy, the primary market for Canada’s energy products, may be heading into another recession. The loonie has also fallen on speculation Europe’s sovereign-debt crisis will sap risk demand.

Government bonds fell today. The benchmark two-year yield rose six basis points, or 0.06 percentage point, to 1.06 percent. The yield plunged to 0.783 percent on Aug. 9, the lowest in Bloomberg records dating to 1989. The price of the 2 percent security maturing in August 2013 dropped 12 cents to C$101.78.

The Standard & Poor’s 500 index advanced 2.8 percent. The loonie’s one-month correlation coefficient with the benchmark gauge for U.S. stocks reached 0.92 today, matching the reading on Aug. 22, which is the highest since June 2010, Bloomberg data show. A reading of 1 indicates the measures move in lockstep.

Crude oil for October delivery added 2.5 percent to $87.52 a barrel in New York. The correlation coefficient between oil and the loonie was 0.39 today, about the lowest since March, from as high as 0.86 on Aug. 8.

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: Dave Liedtka at dliedtka@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.