Canadian Dollar Rises Versus Resource Peers on U.S. Growth

Canada’s dollar gained against other commodity-linked currencies on speculation it will benefit more from improving U.S. economic growth, its biggest trading partner, and the rising price of crude oil.

The currency fell against the U.S. dollar, which rose against most of its major counterparts after a report showed sales of previously owned homes unexpectedly fell in February. Canada’s dollar rose against its resource peers of Australia and New Zealand as the nation’s leading indicators increased for the eighth straight month.

“Canada has been performing very well against the crosses recently due to oil,” John Curran, senior vice president in Toronto at CanadianForex Ltd., an online foreign-exchange dealer, said in a telephone interview. Crosses refer to trades not involving the U.S. dollar. “The Canadian dollar is being used as a proxy for North American growth.”

Canada’s currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, fell 0.1 percent to 99.22 cents per U.S. dollar at 5 p.m. in Toronto. One Canadian dollar buys $1.0079. It had fallen as much 0.4 percent.

Against the Australian dollar, the loonie was 0.1 percent higher to C$1.0377, after reaching C$1.0346. It touched the lowest this year, C$1.0337, last week. It traded at 80.94 Canadian cents against the New Zealand currency, up 0.1 percent.

Government bonds rose, pushing the yield on five-year debt down by three basis points, or 0.03 percentage point, to 1.71 percent, the first decrease in seven days. The price of the 1.5 percent bonds due in March 2017 rose 15 cents to C$99.02.

Bond Auction

Canada sold C$1.4 billion of 30-year bonds, drawing an average yield 2.793 percent for the 3.5 percent notes and total bids of C$3.7 billion. The bid-to-cover ratio was 2.65 times, versus 2.44 times at the previous auction of 30-year bonds, on Nov. 16, which drew an average yield of 2.76 percent, according to central bank data. The average ratio, which measures the amount bid relative to the amount on offer, was 2.44 times over the five auctions before today.

The Canadian dollar may benefit from momentum and extend recent gains against the Australian dollar, Bank of Nova Scotia (BNS) said, citing technical analysis.

Momentum indicators are generating sell signals for the Aussie versus the Canadian currency, according to Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto. The moving average convergence/divergence for the currency pair pushed further below the centerline, indicating bearish sentiment may weigh on the Australian currency.

Bears ‘in Control’

“The signals are for a weaker Aussie and the bears are still very much in control,” Sutton said in a telephone interview. “Seeing that the moving average convergence/ divergence line is moving lower, that is indicative that that the trend is very much intact.”

Crude oil for May delivery rose as much as 1.9 percent to $107.22 a barrel in electronic trading on the New York Mercantile Exchange. U.S. crude inventories shrank 1.4 million barrels last week, the most in six weeks, according to the American Petroleum Institute. Stockpiles were forecast to gain 2.2 million barrels, according to analysts surveyed by Bloomberg News. Oil is Canada’s largest export.

The U.S.-Canada exchange rate “is going to remain a function of the trend we’ve seen in the price of crude oil,” Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd., said by phone from London. “If that continues to drift higher, reflecting fears over potential supply disruptions in Iran, then we could see the U.S. dollar push lower against the Canadian dollar over the next couple of months.”

Balanced Budget

Brent crude rallied 11 percent last month, the most in a year, on concern European Union and U.S. sanctions against Iran’s nuclear program will disrupt oil exports from the Middle East. The Persian Gulf nation has threatened to shut the Strait of Hormuz, a transit route for a fifth of the world’s oil supplies, in response to an embargo.

Quebec Finance Minister Raymond Bachand says he’ll deliver what many of his colleagues around the world can only dream of: a return to balanced budgets without the need for further austerity.

Canada’s second-most populous province will have a shortfall of C$1.5 billion ($1.5 billion) in the year that begins April 1 before returning to balance in the following year, Bachand said. He cut the deficit projection for the current fiscal year to C$3.3 billion from the C$3.8 billion gap forecast a year ago, aided by lower borrowing costs.

Leading Indicators

Canada’s index of leading economic indicators gained 0.6 percent in February on increases in stock prices and manufacturing while consumer spending waned, Statistics Canada said today in Ottawa. The result matched the median estimate in a Bloomberg News survey with nine responses. The January figure was revised lower to a 0.4 percent increase from an earlier estimate of 0.7 percent.

Sales of previously owned U.S. houses unexpectedly fell in February, showing that the real-estate market is taking time to strengthen. Purchases dropped 0.9 percent to a 4.59 million annual rate from a revised 4.63 million pace in January that was faster than previously estimated and the highest since May 2010, a report from National Association of Realtors showed today in Washington. The median forecast in a Bloomberg News survey called for a rise to 4.61 million.

Even with the decline in February, sales during the first two months of 2012 were the strongest in five years, adding to builder optimism.

The dollars of Canada and the U.S. have weakened 0.5 percent over the past week, the most after the Aussie’s 1.1 percent decline and the New Zealand dollar’s 1 percent loss, according to Bloomberg Correlation-Weighted Currency Indexes.

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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