Canada’s dollar rallied to a 10-week high against its U.S. counterpart as stocks and crude oil gained amid demand for riskier assets.
The currency moved closer to parity with the greenback after a report showed the economy in U.S., Canada’s largest trading partner, expanded at a slower pace in the second quarter, while exceeding forecasts. Demand for risker currencies was supported as European Central Bank President Mario Draghi will hold talks with Bundesbank President Jens Weidmann in the coming days in an effort to overcome the biggest stumbling block to a new raft of measures including bond purchases, two central bank officials said. Government bonds fell for a third day.
“The market got back to what it’s been doing over the last few days, which is just buying risk,” said Darcy Browne, managing director of capital markets trading at Canadian Imperial Bank of Commerce in Toronto. “I think people were hoping that they would inevitably give them a number that would justify quanitative easing, and it didn’t really come today.”
Canada’s currency, nicknamed the loonie, gained 0.7 percent to C$1.0033 per U.S. dollar at 5 p.m. in Toronto, touching the strongest since May 15. The currency is up 1.3 percent versus the greenback this month. One Canadian dollar buys 99.68 cents.
The Standard & Poor’s 500 Index gained 1.9 percent, while futures on crude oil, Canada’s largest export, added 0.9 percent to $90.21 a barrel in New York.
The Canadian dollar faces an “critical hurdle,” before gaining to as much as 99 cents against the greenback, Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co., wrote in a note to clients today.
The U.S. dollar slid this week against its Canadian peer, and is approaching the key support level of $1.0065, which is the 61.8 percent retracement from the April low, he wrote. Support refers to an area on a chart where traders believe orders to buy an asset may be clustered.
The benchmark government 10-year yield rose 10 basis points, or 0.10 percentage point, to 1.74 percent, as the price of the 2.75 percent security due in June 2022 declined 94 cents to C$109.06.
The Fed will open a two-day meeting July 31. While policy makers refrained from introducing a third round of asset purchases at their session last month, Fed Chairman Ben S. Bernanke indicated that it’s a possibility. The central bank purchased $2.3 trillion of securities from 2008 to 2011 in two rounds of a stimulus strategy called quantitative easing.
Bank of Canada policy makers held the country’s main interest rate at 1 percent July 17 and said an increase remains possible. The Ottawa-based central bank meets Sept. 5 to reconsider rates.
The loonie has breached its 50-, 100- and 200-day moving averages yesterday as it approaches parity with the U.S. dollar. The last time the two traded on a one-to-one basis was May 15, when the loonie touched 99.90 cents to the greenback. Canada’s dollar has traded in 2012 as strong as 98.04 cents on April 27 and as weak as C$1.0447 on June 4.
“The Canadian dollar is getting expensive at parity, just because there’s no growth in the world and Canada’s a growth currency,” Browne said.
U.S. gross domestic product, the value of all goods and services produced, rose at a 1.5 percent annual rate after a revised 2 percent gain in the prior quarter, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg News predicted a 1.4 percent increase.
“The better risk tone has continued,” Blake Jespersen, managing director of foreign exchange in Toronto at Bank of Montreal (BMO), said in a telephone interview. “Positive growth for the U.S. is good for Canada, so we would expect a surprise to the high side to benefit the Canadian dollar.”