Canadian Dollar Gains as Flaherty Budget Ends Deficit in 2015

Canada’s dollar strengthened the most in a week against its U.S. peer as Finance Minister Jim Flaherty said he plans to eliminate the country’s deficit before the next election in 2015.

The currency rose earlier as Canadian retail sales gained in January to recoup some of the previous month’s plunge, a sign the economy may be recovering, and fewer Americans than forecast filed for first-time jobless claims. The so-called loonie climbed against the majority of its most-traded peers after a report showed services and manufacturing in Europe contracted in March and Standard & Poor’s lowered Cyprus’s long-term sovereign credit rating to CCC from CCC+ with a negative outlook.

“The government is very clearly trying to show some restraint from a fiscal-policy perspective, trying to differentiate Canada from the rest of the Group of 10, at least in terms of overall fiscal health, which is broadly supportive for the Canadian dollar,” said Mark Frey, chief market strategist at Cambridge Mercantile Group, a corporate currency brokerage, by phone from Victoria, British Columbia.

The loonie, as the Canadian dollar is known for the image of the waterfowl on the C$1 coin, rose 0.1 percent to C$1.0252 per U.S. dollar at 5 p.m. in Toronto after gaining as much as 0.6 percent, the most since March 14. One loonie buys 97.54 U.S. cents.

Canada’s benchmark 10-year bond rose, with yields falling five basis points, or 0.05 percentage point, to 1.81 percent. The 2.75 percent security maturing in June 2022 gained 44 cents to C$107.91.

Futures on crude oil, Canada’s largest export, fell 1.2 percent to $92.42. The Standard & Poor’s Index of 500 U.S. stocks declined 0.8 percent.

Fiscal Forecast

Flaherty’s budget projected Canada will swing to a surplus of about C$800 million in the fiscal year that begins April 2015, from a C$25.9 billion deficit in the year ending this month. Spending growth is forecast to average 2.1 percent over the next five years, after rising about 26 percent, or 4.9 percent a year, since 2007. Revenue is projected to grow an average 4.6 percent, more than double the current year’s pace, as Flaherty bets the country’s expansion will pick up steam.

Canadian retail sales climbed 1 percent to C$38.9 billion ($38.1 billion), Statistics Canada said in Ottawa, following a revised drop of 2.3 percent in the prior month, the biggest since April 2010. Economists surveyed by Bloomberg News forecast a 0.9 percent increase, based on the median of 22 projections.

‘Early Strength’

“There was probably a little bit of early strength in the Canadian dollar against the euro on the back of the softer European economic numbers this morning,” said Matthew Perrier, director of foreign exchange trading at Bank of Montreal by phone from Toronto. “The market is waiting to see what happens over the next couple days with Cyprus.”

Perrier said the U.S. dollar would find support if it sunk to C$1.0150, where buy orders may be clustered. The loonie gained 0.3 percent to C$1.3229 per euro today.

The loonie gained as applications for jobless benefits in the U.S., Canada’s largest trading partner, increased by 2,000 to 336,000 in the week ended March 16, Labor Department figures showed. Economists projected 340,000 claims, according to the median estimate in a Bloomberg survey. The monthly average, which smooths the week-to-week volatility, dropped to the lowest level since February 2008.

Canada’s dollar advanced 0.3 percent yesterday after the U.S. Federal Reserve led by Chairman Ben S. Bernanke said it will keep buying bonds at a pace of $85 billion a month to spur growth and reduce unemployment. Policy makers said they plan to hold the target interest rate near zero as long as unemployment remains above 6.5 percent and inflation is projected to be no more than 2.5 percent.

‘Status Quo’

“The overriding factor is the Fed looking like it’s remaining status quo and it looks like people will be selling U.S. dollars,” said John Curran, a senior vice president at CanadianForex Ltd., an online foreign-exchange dealer, by phone from Toronto.

Curran said there would be “demand to buy U.S. against Canada if we get down to the C$1.0180 area, C$1.0150 to C$1.0180.”

The loonie lost ground against the currencies of fellow commodity-exporting countries, falling as much as 1.3 percent against the New Zealand dollar to 85.25 Canadian cents, its most since Dec. 2011. The loonie declined as much as 0.5 percent against the Australian dollar to 93.44 Canadian cents.

The loonie has gained 0.8 percent in the past month against nine developed nation peers tracked by the Bloomberg Correlation Weighted Indexes. The U.S. dollar is up 1.1 percent, the euro is down 1.4 percent and the yen has dropped 0.6 percent.

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

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.