Canadian Currency Rises Against Most Major Peers on Risk Demand

Canada’s dollar rose against most of its major counterparts, trading at almost a three-month high versus the U.S. currency, as speculation Greece will win its second bailout next week fueled demand for higher-risk assets.

The currency almost erased last week’s loss against the greenback as crude oil, the nation’s biggest export, climbed to a nine-month high and stocks rallied. Data spurred speculation the economy of the U.S., Canada’s largest trade partner, is improving. Retail sales slipped in December, a report next week in Ottawa is forecast to show.

“The Canadian dollar did well, particularly because it’s associated with oil,” said Thomas Molloy, chief dealer at FX Solutions LLC, an online currency trading company in Saddle River, New Jersey. “This week’s numbers have been very good for the broad recovery, particularly in the U.S. That has contributed to a risk-on sentiment.”

Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, appreciated 0.5 percent to 99.68 cents per U.S. dollar yesterday in Toronto, from C$1.0014 a week earlier. It touched 99.38 cents Feb. 15, approaching the 99.26 cent level it reached Feb. 9, the strongest since Oct. 31.

The loonie lost 0.8 percent in the five days ended Feb. 10, breaking the longest stretch of weekly gains since October.

Implied volatility for one-month options on the Canadian dollar versus the greenback declined this week, approaching a 10-month low. It touched 7.77 percent yesterday after reaching 7.66 percent on Feb. 10, the least since April. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings. It averaged 10 percent over the past year.

Bonds Little Changed

Government bonds were little changed, with the benchmark 10-year note yielding 2.04 percent and trading at C$110.16. Two- year (GCAN2YR) yields touched 1.11 percent, the highest level since Oct. 28, before ending the week at 1.07 percent.

Canada will auction C$400 million ($400 million) of inflation-linked securities on Feb. 22, according to a statement on the central bank’s website. The 1.5 percent real-return bonds mature in December 2044.

Risk appetite swelled as U.S. Commerce Department data on Feb. 16 showed housing starts increased last month more than forecast to a 699,000 annual rate, and the Labor Department reported that initial claims for unemployment benefits slid last week to 348,000, the fewest since March 2008.

‘More Upbeat’

“There has been a nice little pickup for the Canadian dollar as markets are certainly more upbeat,” Blake Jespersen, director of foreign exchange at Bank of Montreal in Toronto, said on Feb. 16. “The U.S. data is continuing to surprise in many aspects.”

Canadian consumer prices rose 2.5 percent in January from a year earlier, beating the median estimate in a Bloomberg survey, Statistics Canada data showed yesterday. Factory sales in Canada rose for second month in December, advancing 0.6 percent. The figure trailed a 2 percent increase forecast in a survey of economists by Bloomberg News.

Retail sales declined for the first time in five months in December, slipping 0.1 percent, economists in a Bloomberg Survey forecast before Statistics Canada reports the data on Feb. 21.

The loonie gained as the Standard & Poor’s 500 Index rose 1.4 percent for the week and touched highest level yesterday since May. The currency tends to rise and fall with stocks, and has a 60-day correlation coefficient of 0.82 with the S&P 500. A reading of 1 would indicate they move in lockstep.

Crude Climbs

Crude oil advanced for a second week. March futures rallied 5.1 percent, the most since December, to $104.06 a barrel in New York. They touched $104.14 yesterday, the highest since May 11. The Thomson Reuters/Jefferies CRB Index of commodities rose 1.7 percent in its first weekly gain since Jan. 27. Raw materials, including crude, account for about half of Canada’s export revenue.

“The Canadian dollar has really been tracking equities,” said Shane Enright, executive director at Canadian Imperial Bank of Commerce’s CIBC World Markets unit in Toronto. “The commodity bloc as a whole has been gaining. Overall sentiment is still pretty good”

New Zealand’s dollar and Norway’s krone were the top two performers this week among the greenback’s 16 most-traded counterparts, and Canada’s dollar was No. 5. All three countries export commodities.

The loonie weakened on Feb. 15 as European leaders wrangled over a 130 billion-euro ($171 billion) aid package for Greece. A meeting of euro-area finance ministers that day was canceled as officials prodded the country to agree to more austerity measures, and Greek Finance Minister Evangelos Venizelos said wealthier euro-area nations were “playing with fire.”

Bond Redemption

Greece, where Europe’s sovereign-debt crisis began more than two years ago, faces a bond redemption on March 20. It must come up with 14.5 billion euros or become the first country in the euro’s 13-year history to default.

Germany, the biggest country contributor to euro-area rescues, signaled yesterday that finance chiefs may be ready to back the bailout when they meet Feb. 20 in Brussels. A bond exchange with private investors is also part of the effort.

“Everything is euro-zone related,” said Molloy at FX Solutions. “There is an important meeting next week, and hopefully Greece will be bailed out and that will give us a few days’ break from that issue.”

The loonie rose 1.8 percent over the past three months against nine developed-nation counterparts monitored by Bloomberg Correlation Weighted Currency Indexes. The U.S. dollar weakened 1.7 percent, and the euro dropped 4.3 percent.

To contact the reporter on this story: Austen Sherman in New York at asherman18@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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