Canada Dollar Reaches Highest in Month on Smaller Oil Difference

The Canadian dollar reached its highest level in a month as the discount on Canadian heavy oil compared with the U.S. benchmark narrowed from its widest in more than two months, boosting growth prospects.

Crude oil, the nation’s largest export, was little changed, remaining above $100 a barrel for a 16th straight day in New York. Average weekly earnings picked up speed in May with a 2.5 percent increase compared with a 2.2 percent increase the month before, Statistics Canada reported.

“If you look at the energy sector, which is a more important one for Canada, prices there are holding firm, if not doing relatively well,” said David Watt, chief economist in Toronto at the Canadian unit of HSBC Holdings Plc. “The market got a bit ahead of itself in pricing in Canadian dollar weakness.”

The loonie, as the Canadian dollar is known, rose 0.4 percent to C$1.0280 per U.S. dollar at 5 p.m. in Toronto. Earlier it touched C$1.0255 per U.S. dollar, the highest since June 19. One loonie buys 97.28 U.S. cents.

The Canadian dollar breached its 100-day moving average of C$1.0269 before weakening.

Canada’s benchmark 10-year government bond rose, with yields falling two basis points, or 0.02 percentage point, to 2.46 percent. The 1.5 percent security maturing in June 2023 added 15 cents to C$91.66.

Oil Trade

The Canadian dollar has rallied since touching C$1.0609 on July 5, the weakest level in almost two years. Much of gain has been due to increased oil prices linked to temporary factors such as political turmoil in the Middle East and seasonal increases in U.S. oil demand, according to a note from Citigroup Inc. analysts led by Josh O’Byrne.

With the Bank of Canada unlikely to raise rates until early 2015, the loonie could drop against the U.S. dollar with the ending of the temporary factors elevating oil prices, the note said.

Futures on crude oil rose 0.2 percent to C$105.57 per barrel, after dropping the most in a month yesterday. Oil has stayed above $100 per barrel since July 3. The discount for Canadian heavy oil compared with U.S. benchmarks was $20.50, down from the $22 level on July 23, which was the most since May 10.

Gold futures added 0.9 percent to $1,333.83 an ounce in New York, almost a one-month high.

Commodities Influence

“Since gold’s had a bit of a bounce and crude’s tested up above 100, the Canadian dollar’s been doing better,” David Bradley, director of foreign-exchange trading at Bank of Nova Scotia’s Scotia Capital Inc., said by phone from Toronto. “I think the market assumed prematurely things were looking too bleak and glum.”

The strong crude prices are lowering borrowing costs for energy companies globally and benefiting heavy-oil producers in Canada’s oil sands, such as Suncor Energy Inc. (SU) and Canadian Natural (CNQ) Resources Ltd., more than North American peers.

Relative yields for Calgary-based Suncor have narrowed 28 basis points, or 0.28 percentage point, since June 21, and Canadian Natural spreads have tightened 25 basis points, versus a 22 basis-point compression on average in the Bank of America Merrill Lynch U.S. Energy Index.

The loonie has gained 0.2 percent in the past month against nine developed nation currencies tracked by the Bloomberg Correlation Weighted Index. The U.S. dollar has fallen 1.8 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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