Canada’s Dollar Gains as Wagers on Fed Weigh on U.S. Currency

Canada’s dollar gained the most this week as speculation the Federal Reserve will begin slowing stimulus as soon as September weighed on demand for assets denominated in the U.S. currency.

The Canadian dollar strengthened as crude oil, the nation’s biggest export, advanced for a fifth day, the longest winning stretch since April. U.S. stocks and Treasuries dropped, while gold, which Canada produces, rallied. Claims for jobless benefits in the U.S. unexpectedly dropped and the cost of living rose, bolstering bets the Fed will soon slow its bond buying.

“All the U.S. assets are down -- stocks are down, bonds are down, the dollar is down,” Marc Chandler, the global head of currency strategy at Brown Brothers Harriman & Co., said by telephone from New York. “If I’m right, we’re in a weak U.S.- dollar environment for a little bit. That means the Canadian dollar is going to strengthen; maybe there’s scope for another percent or so.”

The loonie, as Canada’s currency is nicknamed for the image of the aquatic bird on the C$1 coin, appreciated 0.4 percent, the most on a closing basis since Aug. 9, to C$1.0306 per U.S. dollar at 5 p.m. in Toronto. It declined earlier to C$1.0364 after touching C$1.0370 yesterday, the weakest since Aug. 8. One loonie buys 97.03 U.S. cents.

The U.S. dollar fell against 12 of its 16 most-traded counterparts tracked by Bloomberg, while the loonie advanced against 10.

“What’s bad for the U.S. dollar is good for the Canadian dollar in this case,” said Greg T. Moore, currency strategist at Toronto-Dominion Bank, by phone from Toronto.

Stocks, Bonds

The Standard & Poor’s 500 Index slid 1.4 percent, and U.S. Treasury 10-year notes dropped, with yields touching 2.82 percent, the highest since August 2011.

Canada’s benchmark 10-year government bonds fell, pushing yields up four basis points, or 0.04 percentage point, to 2.67 percent. Yields climbed as much as eight basis points to 2.71 percent, the highest intraday level since July 2011. The price of the 1.5 percent securities maturing in June 2023 lost 34 cents to C$90.

The loonie strengthened as oil, Canada’s biggest export, rose on speculation turmoil in Egypt may upset Middle Eastern supply. Crude futures climbed as much as 1 percent to $107.87 a barrel in New York.

“Oil is actually rising quite significantly, so that’s quite a boost to Canada,” Sebastien Galy, a senior currency strategist at Societe Generale SA, said by phone from New York.

Gold Gains

Standard & Poor’s GSCI Index (SPGSCI) of 24 commodities also rose for a fifth straight day, with the spot price of gold reaching its highest in almost two months. The gauge increased 0.8 percent, and gold climbed as much as 2.5 percent to $1,370.13, the highest since June 19. The world’s two largest gold producers by market value, Goldcorp Inc. (G) and Barrick Gold Corp. (ABX), are both Canadian.

The Fed buys $85 billion in Treasuries and mortgage bonds each month to put downward pressure on borrowing costs and spur economic growth. The purchases also tend to devalue the American dollar. Canada’s dollar declined earlier on speculation slowing the stimulus would benefit the dollar.

Bets the central bank may begin slowing the purchase pace as soon as next month were boosted by U.S. Labor Department data that showed the number of applications for unemployment insurance benefits in the U.S. declined to 320,000 in the week ended Aug. 10, the fewest since October 2007, from a revised 335,000 the week before. Economists surveyed by Bloomberg called for an increase to 335,000.

Consumer Prices

The U.S. consumer-price index increased 0.2 percent last month after a 0.5 percent gain in June, Labor Department figures showed. The advance matched the forecast in another Bloomberg survey. The core measure, which excludes food and fuel, also climbed 0.2 percent from June.

American industrial production was unexpectedly unchanged in July as a slowdown at factories overshadowed an increase in mining, another report showed. A 0.3 percent rise was forecast.

Canada’s currency has lost 0.6 percent this month against nine developed-nation peers tracked by the Bloomberg Correlation Weighted Index. The U.S. dollar has weakened 1.3 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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