Canada’s Currency Gains From 1-Week Low as Export Prospects Rise
The Canadian dollar gained from its lowest level in almost a week after a report showed the euro area’s economy emerged from a record-long recession, adding to prospects for global growth and Canada’s commodity exports.
The currency rose for the first time in three days as data showed Canadian home prices gained last month from the lowest since 2009. The European report followed data last week that showed increases in factory production, imports and exports in July in China, the world’s second-biggest economy. Canada’s 10-year government bonds were little changed, with yields almost at a two-year high, after a government auction of the securities.
“Commodity currencies in general are stronger today on optimism about Europe,” Adam Button, a currency analyst at forexlive.com, said by phone from Montreal. “The Canadian dollar is benefiting from better sentiment on growth.”
The loonie, as Canada’s currency is known for the image of the waterfowl on the C$1 coin, gained as much as 0.2 percent to C$1.0319 per U.S. dollar before trading little changed at C$1.0342 at 5 p.m. in Toronto. It depreciated earlier to C$1.0370, the weakest since Aug. 8. One Canadian dollar buys 96.69 U.S. cents.
The currencies of New Zealand and Australia, which also export commodities, gained versus most major counterparts, including the loonie. The Aussie dollar rose 0.1 percent to 94.35 Canadian cents, and New Zealand’s dollar gained 0.8 percent to 83.04 Canadian cents.
The advance by Canada’s currency was tempered by speculation that as the economy improves the Federal Reserve will reduce monetary stimulus designed to spur U.S. growth.
Fed policy makers will probably decide at their Sept. 17-18 meeting to start trimming the central bank’s $85 billion in monthly bond purchases, according to 65 percent of economists surveyed by Bloomberg. The buying was designed to put downward pressure on borrowing costs.
The Federal Open Market Committee’s first step may be small, with monthly purchases tapered by $10 billion, according to the median estimate in a survey of 48 economists conducted Aug. 9-13. The Fed will end the buying by mid-2014, they said. In a poll last month, half of economists predicted a Fed reduction in bond buying at FOMC’s September meeting.
Futures on crude oil, Canada’s biggest export, dropped as much as 1.2 percent to $105.60 a barrel in New York before ending the day up 0.2 percent to $107.03.
The yield on Canada’s current 10-year bond was little changed at 2.63 percent after the auction of C$2.8 billion ($2.7 billion) of 10-year debt. The yield touched 2.64 percent earlier, the highest level since August 2011, after climbing yesterday as much as 10 basis points, or 0.10 percentage point.
The Bank of Canada sold securities due in June 2024 at an average yield of 2.729 percent. The sale drew C$6.98 billion in bids, for a 2.49 bid-to-cover ratio, a gauge of demand.
The auction was part of an effort to extend average debt maturities that are the shortest in the Group of Seven nations. Today’s offering was one of five 10-year auctions in a calendar that was expanded in September with one extra sale. The central bank also added a 30-year bond auction.
The share of 10-year bonds is projected to rise to almost half of market debt over the next decade, from 37 percent now, while 30-year bonds will make up 29 percent of outstanding debt, from 19 percent now. Treasury bills as a portion of total market debt are expected to fall to 23 percent by the end of the fiscal year in March 2014, from 27 percent, according to the federal budget released March 21.
The bid-to-cover ratio has averaged 2.41 at this year’s Canadian 10-year bond auctions, including today’s. In 2012, it was 2.38 times.
Canadian home-resale prices across 11 cities rose 1.9 percent in July from a year earlier, versus June’s 1.8 percent rate, according to the Teranet-National Bank Composite House Price Index.
The 17-nation euro area’s gross domestic product rose 0.3 percent in the April-June period after a 0.3 percent contraction in the previous period, the European Union’s statistics office in Luxembourg said, exceeding the median estimate of 0.2 percent growth in a Bloomberg News survey.
“It seems like people are getting excited about Europe getting out of recession, so you take the good news where it comes,” Don Mikolich, executive director of foreign-exchange sales at Canadian Imperial Bank of Commerce, said by telephone from Toronto.
China’s exports rose 5.1 percent in July from a year earlier, while imports gained 10.9 percent, the government reported last week. Factory production increased 9.7 percent from a year earlier.
“It’s been a parade of better data on China in the past two weeks, and it came right after a period where the market grew very concerned about China,” Button said.
The Canadian dollar fell 2.2 percent in the past three months against nine other developed-nation currencies tracked by the Bloomberg Correlation Weighted Index. The U.S. dollar declined 0.2 percent, and New Zealand’s dollar lost 3 percent. Australia’s dollar was the biggest loser, dropping 8.8 percent.
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