Canadian Dollar Advances on Record Foreign Bond Purchases

The Canadian dollar gained against its U.S. counterpart as foreign purchases of Canadian bonds reached a 10-year high.

Canada’s currency erased losses earlier today as foreign investors bought a net C$13.3 billion ($13.4 billion) of Canadian securities in October, led by purchases of bonds, the federal statistics agency said, the fourth straight month of net investment. The currency rose with oil and stocks as President Barack Obama and House Speaker John Boehner met at the White House for budget talks. The Canadian dollar strengthened to a 19-month high against the yen after Japan’s Liberal Democratic Party returned to power on calls for more monetary easing.

“Since we’ve come in the North American session, we’ve seen Canada start to claw back, whether it’s straight dollar/Canada or cross-related moves,” Matthew Perrier, director of foreign exchange at Bank of Montreal (BMO) by phone from Toronto. “Anyway you slice it, Canada’s done a little bit better.”

The loonie, as the Canadian currency is known for the image of the aquatic bird on the C$1 coin, increased 0.1 percent to 98.44 cents at 12:19 p.m. in Toronto. One Canadian dollar buys $1.0159. Canada’s dollar advanced 0.4 percent to 85.05 yen after earlier touching 85.62 yen, it’s highest since May 2011.

Futures of crude oil, Canada’s biggest export, rose 0.9 percent to $87.44 a barrel in New York. The Standard & Poor’s 500 index of U.S. stocks rose 0.9 percent.

Debt Buying

Canada’s government bonds fell, with benchmark 10-year bonds yields rising three basis points, or 0.03 percentage point, to 1.82 percent. The 2.75 percent security due June 2022 fell 25 cents to C$108.08.

Nonresidents bought C$8.15 billion of Canadian government bonds and C$8.93 of private corporate debt -- the largest investment in more than 10 years -- while divesting of C$2.97 billion of money-market paper, Statistics Canada said today in Ottawa. Foreigners purchased a net C$745 million of the country’s stocks, led by shares of oil and gas companies.

Gains in the loonie were tempered as existing home sales in fell 1.7 percent in November from the previous month, according to the Canadian Real Estate Association. Sales were down 11.9 percent from a year earlier.

The government tightened mortgage rules in July while the banking regulator introduced tougher standards on mortgage lenders in an attempt to prevent a housing bubble forming in some markets.

‘Unlimited Easing’

Obama and Boehner met for about 45 minutes, said Boehner spokesman Michael Steel in an e-mailed statement. The aide gave no further details, nor did the White House, as the two try to avoiding more than $600 billion in tax increases and spending cuts, the so-called fiscal cliff, that will start taking effect in January.

Canada’s currency rose against the yen as Japan’s LDP won 294 seats in the 480-member lower house, setting the stage for Shinzo Abe to become Prime Minister with economic policies that include “unlimited easing” by the Bank of Japan (8301) to reach a 2 percent inflation target and increased public-works spending.

“Unlimited easing is not going to be good” for the yen, said John Curran, senior vice president at Canadian Forex Ltd., an online foreign exchange dealer. “It should weaken the currency.”

To contact the reporter on this story: Ari Altstedter in Toronto at aaltstedter@bloomberg.net

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

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