Canada Dollar Advances to One-Week High on Commodities Prospects

Canada’s dollar strengthened, adding to a five-day gain, as stronger-than-forecast economic data for China fueled bets that demand for raw materials will rise, overshadowing an unexpected drop in Canadian employment.

The currency rose against most major peers as commodities including oil, Canada’s biggest export, advanced after a report showed Chinese industrial production increased in July. The currencies of New Zealand and Australia, which also export commodities, rallied, while the American dollar headed for a weekly loss as haven demand ebbed. The Canadian dollar briefly reversed gains after the nation lost jobs in July.

“It looks like markets are reevaluating slightly their U.S.-growth bullishness and are moving back into the commodity currencies,” said Greg Anderson, head of global foreign exchange strategy at Bank of Montreal, by phone from New York.

The loonie, as Canada’s currency is nicknamed for the image of the aquatic bird on the C$1 coin, appreciated 0.4 percent to C$1.0289 per U.S. dollar at 5 p.m. in Toronto. It reached C$1.0276, the strongest level since Aug. 1, after weakening earlier as much as 0.2 percent. The currency gained 1 percent on the week. One Canadian dollar buys 97.19 U.S. cents.

Hedge funds and other large speculators decreased for a fourth straight week their bets that 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 loonie compared with those on a gain -- so-called net shorts -- was 10,436 on Aug. 6, the narrowest since February.

Bonds Rise

Canada’s benchmark 10-year government bonds gained for a third day, pushing yields down two basis points, or 0.02 percentage point, to 2.48 percent. The price of the 1.5 percent securities maturing in June 2023 added 14 cents to C$91.54.

Futures on crude oil rallied for the first time in a week, gaining 2.7 percent to $106.14 a barrel in New York. Standard & Poor’s GSCI Index (SPGSCI) of 24 commodities climbed 1.1 percent.

The loonie reached its weakest level of the day after Statistics Canada report the nation lost 39,400 jobs last month, and the unemployment rate rose to 7.2 percent from 7.1 percent. Economists in a Bloomberg survey projected a 10,000-job gain and an unchanged jobless rate.

Even after the losses, Canada has had a monthly average of an additional 18,400 jobs over the past three months, thanks to the 95,000 positions that were added in May, the most in a decade. The average in the second half of 2012 was 27,820.

‘Not Catastrophic’

“We are still seeing some adjustment from that extraordinarily strong figure in May, so taken as the average over the last three months it doesn’t look quite as bad as the headline suggests,” said Adam Cole, head of Group of 10 currency strategy at Royal Bank of Canada, by phone from London. “It’s a soft reading, no doubt, but it’s not catastrophic, and the trend is still moderately higher.”

Today’s number probably won’t affect Bank of Canada policy, Cole said. The central bank said in a July 17 statement its next policy move will be to raise interest rates. It boosted 2013 growth estimates to 1.8 percent, up from a prediction in April of 1.5 percent.

The loonie rose as Chinese factory production increased 9.7 percent from a year earlier, the National Bureau of Statistics said today in Beijing. Analysts had forecast an 8.9 percent gain, according to the median estimate of a Bloomberg survey with 47 responses.

Retail sales in the country advanced 13.2 percent, while fixed-asset investment excluding rural households grew 20.1 percent in the first seven months of the year, reports showed.

Data yesterday showed China’s exports rose 5.1 percent in July from a year earlier, while imports gained 10.9 percent.

‘Risk Currency’

“The Canadian dollar is a risk currency, and what we’ve seen lately coming out of China, and this week was a very heavy China-data week, was much better than expected,” Eimear Daly, a currency-market analyst at Monex Europe Ltd., said by phone from London. “The Canadian dollar as a commodity currency is obviously going to gain in line with that.”

The loonie trailed fellow commodity exporters today in a basket of 10 developed nation currencies tracked by the Bloomberg Correlation-Weighted Index. The loonie rose 0.2 percent, versus the Australian dollar’s 0.9 percent increase and the New Zealand dollar’s 0.5 percent increase.

The U.S. dollar fell for the week against all of its 16 most-traded counterparts tracked by Bloomberg.

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

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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