Canadian Dollar Rises as Greece Scraps Referendum, Buoying Demand for Risk

Canada’s dollar rose for a second consecutive day after Greece signaled that it won’t hold a referendum on its financial rescue, encouraging demand for higher-yielding assets.

The Canadian currency advanced earlier versus its U.S. counterpart as the European Central Bank lowered its benchmark interest rate and Group of 20 leaders discussed a bigger role for the International Monetary Fund in the European debt crisis. Canadian government bonds fell for a second day.

“People are feeling a little bit more comfortable with the outlook for the markets,” said Kathy Lien, director of currency research at the online trading firm GFT Forex, by phone from New York. “They’re relieved to see one of the major uncertainties eliminated,” she said, referring to the referendum. “That’s why the Canadian dollar is trying to climb higher.”

The Canadian currency appreciated 0.7 percent to C$1.0067 per U.S. dollar by 5 p.m. Toronto time. The loonie, as the currency is also known, rose earlier today as much as 0.8 percent and decreased by the same amount. One Canadian dollar buys 99.33 U.S. cents.

The Standard & Poor’s 500 Index rallied 1.9 percent, while Canada’s benchmark S&P/TSX Composite Index increased 1.9 percent. Futures on crude oil, Canada’s biggest export, rose 1.9 percent.

A drop in government bonds pushed the 10-year yield up four basis points, or 0.04 percentage point, to 2.20 percent. The price of the 3.25 percent securities maturing in June 2021 fell 33 cents to C$108.97.

Reaching Out

Greek Prime Minister George Papandreou reached out to the opposition about setting up a transitional government, indicating such an accord would secure aid and remove the need for a referendum on euro membership.

The ECB reduced its benchmark interest rate to 1.25 percent from 1.50 percent as Italian and Spanish borrowing costs soared after euro-area leaders raised the prospect of Greece’s exiting the monetary union.

“What we are observing now is slow growth, heading towards a mild recession by year-end,” the newly installed ECB President Mario Draghi told reporters in Frankfurt. Draghi took over from Jean-Claude Trichet earlier this week.

“Our new best friend, the new Italian president of the ECB, seems to have a better sense of market feel than his predecessor,” Firas Askari, head of currency trading at Bank of Montreal’s BMO Capital Markets in Toronto, said in a telephone interview. “I don’t think they waited for Mr. Trichet to fully exit the building before they cut rates.”

Britain’s Prime Minister David Cameron said the resources of the IMF might need to be increased, though it shouldn’t directly invest in the euro region’s 440 billion-euro ($604 billion) bailout fund. Brazil and Russia have said they are ready to help the region provided that assistance goes through the IMF.

Canadian Jobs

Canada’s economy added 15,000 jobs last month, according to the median forecast in a Bloomberg News survey of 27 economists before Statistics Canada’s report tomorrow. The unemployment rate is forecast to stay at 7.1 percent.

The Canadian dollar rallied 1 percent during the five days ended Oct. 7, when the government reported that the economy added 60,900 jobs in September, more than four times as many as economists had forecast.

The loonie, as the currency is also known, has risen 0.3 over the past week, according to Bloomberg Correlation-Weighted Currency Indexes, a gauge of 10 developed-nation currencies. The greenback has gained 2.4 percent.

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

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