Canada Dollar Climbs as U.S. Economic Data Adds to Risk A

Canada’s dollar appreciated against its U.S. counterpart by the most in two months on an improved outlook for the nation’s exports after a report showed U.S. manufacturing expanded at a faster pace than forecast.

The Canadian currency rose during the second quarter amid indications of a stronger U.S. economic recovery. A Chinese manufacturing gauge released yesterday advanced, easing concern the world’s second-largest economy is slowing. Bank of Canada Governor Mark Carney said the nation’s economy has performed better than forecast.

“The general tone for risk today is rather better,” Adam Cole, global head of foreign-exchange strategy in London at Royal Bank of Canada’s RBC Capital Markets unit, said in a telephone interview. “The global-risk backdrop still trumps the domestic data flow in terms of overall direction.”

Canada’s currency, nicknamed the loonie, rose 0.8 percent to 99.06 cents per U.S. dollar at 5 p.m. in Toronto, the biggest move on a closing basis since Jan. 3. It climbed 1 percent to C$1.3195 versus the euro, after dropping to C$1.3351, the least since Feb. 29. One Canadian dollar buys $1.0095.

“Some of the positive news from overnight is finally helping the Canadian dollar,” Steve Butler, managing director in Toronto at Bank of Nova Scotia’s Scotia Capital unit, wrote in an e-mail. Markets have turned “risk-on, and stocks are back in the black,” he said.

Level Watch

Government bonds fell, pushing the benchmark 10-year note yield 1 basis points, or 0.01 percentage point, higher to 2.12 percent. The 3.25 percent securities maturing in June 2021 traded at C$109.38, down 10 cents.

The yield reached 2.297 percent on March 19, the highest since October. It was as low last quarter as 1.887 percent in January.

The loonie extended gains after Carney, who spoke today in Waterloo, Ontario, said the nation’s economy has performed better than the central bank’s forecast in recent months as conditions in global financial markets improved and “external headwinds” abated.

European bank-funding and sovereign-debt markets have stabilized and challenges in the region have “moved from the acute to the chronic,” Carney said. The U.S. economy remains on a “modest growth path” and recent data have been encouraging, while China’s economy slows to a still-robust pace.

Carney View

“Conditions in the Canadian economy have also been somewhat stronger and the degree of slack somewhat smaller than the Bank had expected,” Carney, 47, said in the text of his speech. “Growth has been a bit quicker in recent quarters, reflecting a combination of temporary factors as well as improved confidence and better financial conditions.”

Economists predict the Bank of Canada will keep interest rates unchanged until at least the end of 2012, according to the median of forecasts compiled by Bloomberg.

Carney’s comments about the economy being somewhat stronger with less slack, and doing whatever it takes to hit the 2 percent inflation target “are the headlines that the market has latched onto,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, in an e-mail. “The optimism contrasts with the caution in the U.S.”

Employers in Canada may have added 10,500 jobs in March after cutting 2,800 positions in February, according to the median in a Bloomberg News survey of 24 economists. The nation’s jobless rate stood at 9.1 percent in February.

Jobs Prospects

“If we were to get a good payrolls report, and the early indications in the form of the ADP and the ISM number, then we could see a more material break lower,” RBC’s Cole said, referring to the greenback depreciating versus the Canadian dollar.

The Institute for Supply Management’s U.S. factory index rose to 53.4 in March from 52.4 a month earlier, the Tempe, Arizona-based group’s data showed.

Fifty is the dividing line between growth and contraction, and economists surveyed by Bloomberg News projected the gauge would climb to 53. Estimates of the 72 economists ranged from 51.7 to 54.5.

China’s Purchasing Managers’ Index compiled by the logistics federation and the National Bureau of Statistics rose to 53.1 in March from 51 in February.

The gauge, which was released yesterday, has a pattern of gaining each March. In contrast, a PMI from HSBC Holdings Plc and Markit Economics fell to a four-month low of 48.3, showing that manufacturing contracted and export orders declined.

The loonie is up 3.4 percent during the past six months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The U.S. dollar is down 2.8 percent.

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

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

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