Canada’s Dollar Reaches One-Week High Before European Bank-Loan Operation

Canada’s dollar advanced for a second day, touching the strongest level in a week, as the prospect of a second round of European Central Bank three-year loans to banks eased demand for the refuge of the U.S. currency.

The Canadian dollar was headed for a 0.7 percent gain this month versus its U.S. counterpart, which is down against most major currencies. Commodities such as copper rose as confidence among American consumers climbed to the highest in a year. Canada derives about half its export revenue from raw materials, and its biggest trade partner is the U.S.

“The potential impact of the looming LTRO can’t be dismissed,” David Watt, senior currency strategist at Royal Bank of Canada’s RBC Capital Markets unit in Toronto, said of the ECB’s longer-term refinancing operation. “U.S. consumer confidence numbers are helping too. The better consumer confidence numbers give hope that the U.S. economic backdrop is improving.”

Canada’s dollar, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, appreciated 0.4 percent to 99.53 cents per U.S. dollar at 5 p.m. in Toronto. The currency, which reached 99.42 cents, the most since Feb. 21, has appreciated 2.6 percent this year. One Canadian dollar buys $1.0047.

Loonie Versus Krone

“Post-LTRO, I’ll be watching the Canadian dollar versus the Norwegian krone,” Watt said. “It’s been a virtual one-way bet since mid-January, and it has now paused.”

The krone has gained 6.4 percent since Jan. 16 versus Canada’s currency. It dropped 0.6 percent yesterday, its first loss in four days, before gaining 0.4 percent today to 5.5922 to the loonie.

Copper futures for May delivery climbed as much as 2.1 percent to $3.9575 a pound in New York, the highest since Feb. 10, before trading at $3.9160, up 1.1 percent.

The loonie pared gains earlier after reports showed orders for durable goods in the U.S. fell by the most in three years and home prices in 20 American cities dropped more than economists forecast.

The currency fell versus the euro and counterparts that included Brazil’s real and the South African rand.

“The Canadian dollar is lagging the broader market,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “It is being influenced by the overall pressure being put to bear on the U.S. dollar. Canada does trade as a proxy for North America.”

The Standard & Poor’s 500 (SPX) Index rose 0.3 percent after falling 0.1 percent. The MSCI World Index rose 0.4 percent after dropping 0.1 percent.

ECB Operation

After giving euro-region banks a record 489 billion euros ($655 billion) in its first refinancing operation on Dec. 21, the Frankfurt based ECB will probably lend them another 470 billion euros this week, according a Bloomberg News survey. The loans will be allotted tomorrow. The operations are designed to increase liquidity and avert a credit crunch.

“The U.S. dollar is weaker as the market readies for tomorrow’s ECB LTRO operation,” John Curran, senior vice president in Toronto at CanadianForex Ltd., an online foreign- exchange dealer, wrote in a note to clients today. The currency, which has traded for 24 straight days within a 2-cent range, is “well-contained,” Curran said. He predicted it will weaken to C$1.03 by the end of March.

Resistance Levels

The U.S. dollar “failed at key resistance levels” yesterday in the area of C$1.0050 to C$1.0070, Niall O’Connor, a technical analyst at JPMorgan Chase & Co. in New York, wrote in a note to clients today. The greenback closed yesterday at 99.90 Canadian cents after touching C$1.0050. Resistance refers to the upper boundary of a trading range, where sell orders may be clustered. Support, or the lower boundary of the range, at 99.06 cents to 98.90 cents, “stays critical,” he wrote.

Government bonds due in five years and longer rose, pushing the yield on the benchmark 10-year note down three basis points, or 0.03 percentage point, to 1.98 percent. It touched 1.96 percent, the lowest level since Feb. 3. The price of the 3.25 percent note due in June 2021 advanced 27 cents to C$110.74. Two-year yields rose less than one basis point to 1.07 percent.

Canada will sell C$3.5 billion ($3.5 billion) of two-year debt tomorrow, according to a statement on a Bank of Canada website. The 0.75 percent securities mature in May 2014.

The bid-to-cover ratio, or the amount bid divided by the amount offered, at a Feb. 8 auction of two-year debt was 2.34 times, compared with an average of 2.47 times at the past five sales, according to Bank of Canada data. A higher ratio indicates stronger demand. The Feb. 8 offering drew an average yield of 1.095 percent.

U.S. Consumer Confidence

The loonie gained versus the U.S. dollar as the Conference Board’s index of U.S. consumer sentiment increased more than forecast for February, to 70.8 from a revised 61.5 in January. The New York-based private research group released the data today. Economists predicted the gauge would climb to 63, according to a Bloomberg News survey.

The greenback fell versus most major peers as U.S. home prices dropped more than forecast in December to the lowest level since the housing crisis began in mid-2006.

The S&P/Case-Shiller index of property values in 20 cities fell 4 percent from a year earlier, after decreasing 3.9 percent in November, data from the group showed today. Orders for U.S. durable goods dropped in January by the most in three years, 4 percent, a government report showed.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

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

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