Canada Dollar Rises to 3-Week High on Record Building Permits

The Canadian dollar climbed to its highest level in almost three weeks after building permits rose to a record in July, adding to signs that the economy is gaining momentum.

The currency advanced for a second day versus its U.S. peer as the value of municipal permits climbed 20.7 percent to C$7.99 billion ($7.70 billion), Statistics Canada said, with the gain exceeding all 10 forecasts in a Bloomberg survey. A report tomorrow may show housing starts in August remained at almost the previous month’s level. Canada’s dollar rallied last week after the country added triple the amount of jobs forecast.

“The double-whammy of employment and a sharp increase in building numbers this morning is supporting the Canadian dollar in this range,” Shaun Osborne, chief currency strategist the Toronto-Dominion Bank, said by phone from Toronto.

The loonie, as the Canadian dollar is known for the image of aquatic bird on the C$1 coin, rose 0.4 percent to C$1.0369 per U.S. dollar at 5 p.m. in Toronto after touching C$1.0360, the strongest point since Aug. 20. One loonie buys 96.44 U.S. cents.

Canada’s benchmark 10-year government bonds rose, pushing yields down two basis points, or 0.02 percentage point, to 2.75 percent. The price of the 1.5 percent securities maturing in June 2023 gained 19 cents to C$89.45.

Oil, Syria

Futures on crude oil, the nation’s largest export, fell 1.4 percent to $108.94 per barrel in New York after touching a two-year high of $112.24 on Aug. 28.

“The downward pressure on oil, with diplomacy taking a front seat in the Syria crisis, could be a drag on commodities more generally,” which is curbing Canadian dollar gains, Osborne said.

U.S. President Barack Obama struggled to convince Congress and the American public of the need for a military strike on Syria for the alleged use of chemical weapons as Bashar al-Assad threatened retaliation “direct and indirect” if the U.S. attacks.

Traders are exiting short positions amassed on the Canadian dollar versus its U.S. counterpart after the nation added more jobs than forecast in August. 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, traded at 1.29 percent, a five-week low.

Unwinding Shorts

“Now that we’ve seen the backwash of the requisite employment report north and south of the border, one would assume that would prompt some of those shorts to be unwound,” Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce, said by phone from London. “That has provided the Canadian dollar with some impetus.”

The nation’s economy added 59,200 positions in August, according to a Sept. 6 Statistics Canada report that exceeded the 20,000 forecast in a Bloomberg survey of 22 economists. The central bank kept its benchmark rate at 1 percent for the 24th consecutive meeting and said slack in the economy will start to disappear in 2014. Canada Mortgage & Housing Corp. may report Sept. 10 that work began on 190,000 houses in August, according to a Bloomberg survey.

The Bank of Canada forecasts third-quarter growth at 3.8 percent in its July monetary policy report. Gross domestic product grew 1.7 percent in the second quarter.

‘Scaling Back’

In the U.S., Canada’s biggest trading partner, the addition of 169,000 workers last month trailed the 180,000 median forecast in a Bloomberg survey of 96 economists. Unemployment fell to 7.3 percent, the lowest since December 2008, as workers left the labor force.

“The broader focus is still on the Fed,” Osborne said. “If we do see some Canada dollar appreciation, it may be limited.”

Last week’s payrolls report is the last one Federal Reserve officials will see before their Sept. 17-18 meeting, at which they will decide whether to reduce an $85 billion monthly pace of bond purchases that have bolstered global markets.

“We will still have the tapering, though the market is scaling back some of the more extreme projections of how far they’d go,” Stretch said. “The market still anticipates we’ve got so far down the path now that any pullback in the timing would create too much uncertainty. Tapering is still very much in the cards.”

The Canadian dollar rose 0.6 percent in the past week against nine developed nation currencies tracked by the Bloomberg Correlation Weighted Indexes, the best performer after the dollars of fellow commodities exporters Australia and New Zealand. The U.S. dollar, with a drop of 1.1 percent, is the biggest decliner after the yen.

To contact the reporters on this story: Ari Altstedter in New York at aaltstedter@bloomberg.net; 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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