Canada Dollar Gains Second Day as Earnings Bolster Risk Demand

The Canadian dollar rose for a second day amid optimism corporate profits will top forecasts and a report showed June housing starts exceeded analysts’ estimates.

The loonie, as the currency is nicknamed, strengthened as stocks rose and crude oil, Canada’s biggest export, traded at almost its highest level in 14 months before data forecast to show U.S. crude supplies fell for a second week. Canada’s currency briefly erased gains versus the U.S. dollar and extended an advance against the 17-nation euro after report that a European Central Bank officials indicated more loans may be issued to ease the region’s financial crisis.

“People are looking for excuses to add some risk to their portfolios,” said Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp. “The loonie in the last 24 hours came up against some strong support levels.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, rose 0.3 percent to C$1.0527 per U.S. dollar at 5:03 p.m. in Toronto. It added 1 percent to C$1.3455 per euro. One loonie buys 94.99 U.S. cents.

Options Data

The cost to insure against declines in the loonie versus its U.S. peer fell to its lowest point in three weeks. The three-month so-called 25-delta risk reversal rate reached 1.47 percentage points, the least since June 17. 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 bonds were little changed with the yield at 2.47 percent. The 1.5 percent security maturing in June 2023 traded at C$91.52.

The Bank of Canada will auction C$3.4 billion ($3.2 billion) of five-year notes with a coupon of 1.25 percent tomorrow.

Housing starts were 199,586 at a seasonally adjusted annual pace in June, Ottawa-based Canada Mortgage & Housing Corp. said on its website today. Economists forecasted a reading of 187,500 according to the median of 22 responses to a Bloomberg News survey.

Oil, Stocks

Futures on crude oil rose 1.4 percent to $104.57 per barrel in New York, reaching the highest level since May 2012. The Standard & Poor’s 500 Index of U.S. stocks added 0.7 percent, while the S&P/TSX Composite Index, the benchmark Canadian equity gauge, increased 0.7 percent.

“Given the fact that this risk-on move is sustained, we could end up slightly more positive for the Canadian dollar,” said David Tulk, chief macro strategist at Toronto-Dominion Bank’s TD securities unit, by phone from Toronto. “We’ll probably end up in the current range, but probably biased to see a bit more strength for today.”

Aluminum producer Alcoa’s profit excluding expenses related to output cuts and a legal settlement were 7 cents a share in the second quarter, Alcoa said yesterday, topping the 6-cent average of 15 estimates compiled by Bloomberg. Sales fell 1.9 percent to $5.85 billion, surpassing the $5.79 billion average of nine estimates.

The loonie extended gains versus the euro as Reuters reported ECB board member Joerg Asmussen said the central bank is prepared to support additional stimulus.

ECB Update

“There are some dovish comments out of Europe, and that’s fueling this tremendous U.S. dollar rally,” Adam Button, a currency analyst at Forexlive.com in Montreal, said in a telephone interview “There’s a broad stronger dollar theme, which is weighing on the Canadian dollar.”

Hedge funds and other large speculators increased their bets last week the Canadian dollar will decline against the greenback, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers on a decline in the Canadian dollar compared with those on a gain -- so-called net shorts -- was 16,250 on July 2, compared with net shorts of 10,638 a week earlier.

The Canadian dollar has risen 1.3 percent in the past three months against nine developed nations currencies tracked by the Bloomberg Correlation Weighted Index. The U.S. dollar has gained 5.6 percent.

To contact the reporters on this story: Jeff Marshall in New York at jmarshall75@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net

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

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