Canadian Currency Gains as Syria Tensions Spur Demand for Oil

Canada’s dollar rose versus most major peers on bets demand for oil will be buoyed by heightened tensions in the Middle East as U.S. President Barack Obama seeks support in Congress for a military strike on Syria.

Futures on crude oil, Canada’s largest export, gained as much as 1.2 percent on concern an attack on Syria will disrupt shipments from the Middle East. Bank of Canada policy makers will leave the benchmark overnight rate at 1 percent tomorrow, according to trading in overnight index swaps, which also show investors are pricing in 10 basis points of tightening for the bank’s June 2014 meeting, down from 16 points a month ago.

“The situation in Syria is going to take a lot longer than people thought, so commodity prices are likely to stay elevated a lot longer than people thought,” Greg Anderson, the head of global foreign-exchange strategy at Bank of Montreal in New York, said by phone. “Commodity currencies have become a lot more attractive.”

The loonie, as the Canadian dollar is nicknamed for the image of a waterfowl on the C$1 coin, gained 0.1 percent to C$1.0535 per U.S. dollar at 5 p.m. in Toronto, after dropping 0.4 percent last week, its third straight weekly decline. One loonie buys 94.92 U.S. cents.

Bonds Fall

Canada’s 10-year government bonds fell, pushing yields up six basis points, or 0.06 percentage point, to 2.68 percent. Yields touched 2.72 percent, the highest level since Aug. 23. The price of the benchmark 1.5 percent debt due in June 2023 lost 52 cents to C$89.97.

Crude-oil futures traded at $108.47 a barrel in New York, up 0.8 percent. Standard & Poor’s GSCI Index of 24 raw materials increased 0.7 percent.

Data showing a manufacturing rebound in China, the world’s biggest consumer of raw materials, also underpinned rising commodity prices. An official purchasing managers’ index jumped more than estimated to a 16-month high of 51.0, a government report showed Sept. 1 in Beijing. A reading above 50 indicates expansion.

Commodity-exporting nations have dropped this year in a basket of 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index. The loonie has fallen 1.1 percent, New Zealand’s dollar has dropped 1.1 percent and the Australian currency has tumbled 9.3 percent.

Global Growth

“Commodity-centric currencies are benefitting from data showing stabilizing and rebounding global growth,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “That and the delayed strikes on Syria are responsible for risk-on sentiment today.”

Obama, in a surprise announcement Aug. 31, said he would seek congressional authorization to strike at Syrian President Bashar Al-Assad’s chemical-weapons capability in retaliation for its alleged use last month against the country’s own people.

House Speaker John Boehner told reporters today he will back the president’s call for action against Syria.

Bets by futures traders the Canadian dollar will weaken versus its U.S. peer outnumbered those it will gain by the most in 10 weeks, data from the Washington-based Commodity Futures Trading Commission show last week. The difference in the number of wagers by hedge funds and other large speculators on a decline in the Canadian dollar compared with those on a gain -- so-called net shorts -- was 24,959 in the week ended Aug. 27, the most since June 21.

Fed Stimulus

The Federal Reserve will trim its quantitative-easing program of $85 billion in monthly bond purchases at its policy meeting this month, according to 65 percent of economists in a Bloomberg News survey in August. Fed policy makers meet Sept. 17-18 in Washington.

Chairman Ben S. Bernanke said he’ll mine economic data for evidence of a sustained recovery before deciding when to begin scaling back the stimulus program. The purchases, designed to put downward pressure on borrowing costs, tend to devalue the greenback.

The Institute for Supply Management’s manufacturing index increased to 55.7 in August from 55.4 a month earlier, the Tempe, Arizona-based group said today. The median forecast of 85 economists surveyed by Bloomberg called for a reading of 54.

U.S. gross domestic product rose at a 2.5 percent annualized rate from April through June, up from previous reading of 1.7 percent, Commerce Department figures showed Aug. 29 in Washington.

Canada’s gross domestic product expanded 1.7 percent from April through June, slowing from a 2.2 percent pace from January through March, Statistics Canada reported Aug. 30 in Ottawa. A Bloomberg survey projected growth of 1.6 percent.

The second quarter ended with a 0.5 percent decline in June that was the most in a month since March 2009, during the last recession, the data showed. Economists forecast a 0.4 percent monthly contraction.

To contact the reporter on this story: Cecile Gutscher in Toronto at cgutscher@bloomberg.net

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

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