The Canadian dollar strengthened for a second day as optimism about faster global economic growth fueled demand for riskier assets and Canada’s central bank kept its main interest rate unchanged.
The currency rose against the majority of its most-traded peers earlier as data showed gross domestic product growth quickened in Australia and China. All 22 economists surveyed by Bloomberg forecast no change at 1 percent by the Bank of Canada. The Bank of Canada retained language from its last statement saying its next move on interest rates would be to raise them.
“People look at Canada and Australia as being similar types of economies in that they’re developed markets that also have exposure to emerging-market activity,” said David Doyle, a strategist at Macquarie Capital Markets, by phone from Toronto. “Strength out of Australia probably has a feed through to the Canadian dollar.”
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, rose 0.3 percent to C$1.0493 per U.S. dollar at 5 p.m. in Toronto. It gained 0.6 percent earlier, the biggest intraday move since Aug. 8. One loonie buys 95.30 U.S. cents.
“Canada is riding the coattails from overnight positive data,” said Brad Schruder, a director of foreign exchange at Bank of Montreal, by phone from Toronto. “I think this is more a story of the Canadian dollar is just being caught up in overall positive effects coming out of Asia.”
Canada’s benchmark 10-year government bonds fell, pushing the yield up four basis points, or 0.04 percentage point, to 2.72 percent. The 1.5 percent securities due in June (CAGDPMOM) 2023 fell 32 cents to C$89.65.
Futures on crude oil, Canada’s largest export, fell 1.1 percent to $107.35 per barrel and the Standard & Poor’s 500 Index of U.S. stocks gained 0.8 percent.
In his first interest-rate decision on July 17, Bank of Canada Governor Stephen Poloz pointed to slack in the economy and said monetary policy stimulus remains appropriate so long as inflation is muted. The bank said “a gradual normalization of policy interest rates can also be expected.”
Options traders were the least bearish on the Canadian dollar in four weeks. The three-month so-called 25-delta risk reversal rate, which measures the premium charged for the right to buy the U.S. dollar against its Canadian counterpart versus contracts to sell, fell to 1.43 percent, the lowest level on a closing basis since Aug. 12.
“Australia had better-than-expected GDP combined with some improving data globally,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia (BNS), by phone from Toronto. “All that helped growth currencies. And now that we have the Bank of Canada statement out of the way we have a very slight hawkish bias to the bank, and all that has supported” the currency.
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.
Implied volatility for three-month options on Canada’s dollar versus its U.S. counterpart fell to its lowest in two weeks, dropping to 7.35 percent. The average for this year is 6.8 percent.The measure is used to set option prices and gauge the expected pace of currency swings.
The loonie is the second-worst performer in the past month among the 10 currencies tracked by the Bloomberg Correlation Weighted Index. Its 1.3 percent drop is second only to the Norwegian krone’s 2.4 percent fall. The Australian dollar has posted the biggest gain at 3.1 percent.
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