Canadian Dollar Gains Versus Most Major Peers as Crude Oil Rises

The Canadian dollar rose against the majority of its 16 most-traded peers as crude oil, the country’s largest export, rose for a third day and traders bet the country would be less affected by falling metal prices.

The currency strengthened versus the dollars of its fellow commodity exporters Australia and South Africa on speculation Canada will be least hurt by recent weakness in metals. Copper, nickel and gold have all fallen this year after gold posted its biggest daily drop in 33 years last week. It fluctuated against its U.S. counterpart as existing home sales in the U.S. fell 0.6 percent last month.

“There was a big sell-off in commodities the last couple weeks and I think some of the other typically commodity-based currencies like the Aussie and the kiwi probably got hit more percentage wise than the Canadian dollar,” said David Bradley, director of foreign-exchange trading in Toronto at Scotia Capital Inc., a unit the Bank of Nova Scotia (BNS), using the nicknames for the Australian and New Zealand currencies. “It’s not the Canadian dollar, it’s just the other currencies are softer against the Canadian dollar. The Canadian dollar is doing nothing.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, was little changed at C$1.0256 per U.S. dollar at 5:00 p.m. in Toronto. It reached C$1.0294 on April 17, the weakest level since March 13. One loonie buys 97.50 U.S. cents.

Bonds Rise

The cost to insure against losses in the Canadian dollar against its U.S. counterpart rose to almost the highest level in six weeks. The three-month so-called 25-delta risk reversal rate reached 1.13 percent. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

Canada’s benchmark 10-year government bonds were little changed, with yields at 1.7 percent. The 1.5 percent security maturing in June 2023 gained 6 cents to C$98.13.

The Bank of Canada will auction C$3.3 billion ($3.2 billion) of 1.5 percent notes on April 24. The securities mature in August 2015.

Canada’s economy will lag behind global growth after outperforming in the last five years, held back by weaker commodity prices limiting growth in the resource sector and consumers paring back record debt, bond rating company Standard & Poor’s said in a report published April 19.

Oil, Stocks

Crude oil, the country’s largest export, gained 0.9 percent to $88.76 per barrel while the S&P 500 Index of U.S. stocks advanced 0.5 percent.

The loonie traded at an almost six-week low against its U.S. peer as American home sales unexpectedly declined last month, indicating the Canadian economy won’t get help from its largest trading partner.

Purchases of previously owned homes in the U.S., tabulated when a contract closes, fell to a 4.92 million annual rate last month, figures from the National Association of Realtors showed today in Washington. The median forecast of 75 economists surveyed by Bloomberg projected sales would increase to a 5 million rate.

“The fact that we seem to be hitting a bit of a soft patch in U.S. data, this morning’s release confirms that, suggests we could be entering a phase where we see a little bit more risk- on/risk-off dynamics in the market, so in that sense weak U.S. data would actually be CAD negative,” said Greg T. Moore, currency strategist at Toronto-Dominion Bank (TD), by phone from Toronto. “The Canadian recovery is sort of built on an export- driven thesis, and that primarily is built on U.S. demand, so if we don’t have the U.S. demand we don’t have a Canadian recovery.”

Central Bank

Weaker-than-forecast exports and business spending caused the Bank of Canada to cut its 2013 economic growth forecast last week to 1.5 percent from 2 percent as it left interest rates unchanged.

Copper futures have fallen 12 percent this year, while nickel declined 10.4 percent and futures contracts on 100 ounces of gold has fallen 15 percent.

Miners and energy explorers account for 8 percent of the Canadian economy compared to Australia where almost one-in-ten Australian jobs is tied to resource extraction, mainly mining, and industries that service it, a central-bank paper showed Feb. 20.

“From a monetary-policy perspective, as well as the external environment in Australia, Canada looks in slightly better shape and I do think there’s scope for relative Canadian dollar out-performance, albeit more so Australian dollar under- performance,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London.

The Canadian dollar has lost 0.7 percent this year against nine other developed-nation currencies tracked by the Bloomberg Correlation Weighted Index. The Australian dollar has risen 1.7 percent and the New Zealand dollar has gained 5 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

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