Canada Dollar Rises as Fading of Syria Threat Boosts Risk Assets

Canada’s dollar touched a one-month high on the way to its second straight weekly gain as stronger-than-forecast economic data helped the domestic outlook and fading fears the U.S. will attack Syria boosted riskier assets.

The currency pared gains late in the week as focus shifted to the Federal Reserve’s Sept. 17-18 meeting in which policy makers will consider whether to trim a monetary-stimulus program that may debase the greenback. A report showed Canadian building permits in July rose to a record following last week’s jobs data that tripled estimates. The U.S. dollar fell against most major currencies as diplomatic efforts got underway to avoid U.S. military action in Syria.

“As the tensions in Syria eased, we saw market strain dissipate and the Canadian dollar basically move back to where it was before the Syria situation became inflamed,” said David Watt, chief economist at the Canadian unit of HSBC Holdings Plc. “As uncertainty dissipates, the risk-sensitive securities improve, and I think that’s what happened with the Canadian dollar.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, rose 0.5 percent this week in Toronto to C$1.0351 per U.S. dollar. It touched C$1.0306 per U.S. dollar on Sept. 12, the highest point since Aug. 16. One loonie buys 96.61 U.S. cents.

Canada’s benchmark 10-year government bond was little changed, with yields at 2.76. The 1.5 percent security maturing in June 2023 cost C$89.35.

Futures on crude oil, Canada’s largest export, fell 2.1 percent to $108.21 per barrel and the Standard & Poor’s 500 Index of U.S. stocks gained 2 percent.

Syria Turmoil

The U.S. dollar fell against all but the yen among its 16 most-traded peers this week as the country entered talks with Russia on a plan for Syria to give up its chemical weapons arsenal and avoid the possibility of a U.S. strike, which had boosted the appeal of the greenback as a haven asset.

The Federal Open Market Committee will decide to reduce monthly purchases of Treasuries to $35 billion from $45 billion, according to the median of 34 responses in a Bloomberg survey of economists. Policy makers will maintain mortgage-bond buying at $40 billion, the survey shows.

“It certainly seems like markets in general are tied up in knots right now over what the Federal Reserve is going to say next week,” HSBC’s Watt said.

Loonie’s Wings

The loonie rose 1.3 percent last week as employment increased by 59,200, versus a projected 20,000 rise in a Bloomberg survey, while the jobless rate fell to 7.1 percent from 7.2 percent.

The gains continued Sept. 9 after a report showed Canadian building permits rose 20.7 percent to C$7.99 billion in July, the highest on record.

The weekly advance was trimmed yesterday as the ratio of Canadian household debt to disposable income rose to a record in the second quarter on increased mortgage borrowing after policy makers took steps to slow the housing market.

Credit-market debt such as mortgages rose to 163.4 percent of disposable income, compared with a revised 162.1 percent in the prior three-month period, Statistics Canada said yesterday in Ottawa. Mortgage borrowing rose 1.7 percent to C$1.11 trillion ($1.08 trillion).

“You’ve seen Canada have a really great week overall following last Friday’s jobs numbers,” said Brad Schruder, a director of foreign exchange at Bank of Montreal, by phone from Toronto. “And, frankly, while I don’t think the Canadian dollar is falling right now, the wax is beginning to melt on the wings, so to speak.”

Net Shorts

Futures traders decreased their bets that the Canadian dollar will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

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 -- net shorts -- was 30,942 on Sept. 10, compared with net shorts of 34,639 a week earlier. Traders have been betting on a decline since February.

The loonie has fallen 0.8 percent this year against nine developed nations currencies tracked by the Bloomberg Correlation Weighted Index, ahead only of only the currencies of fellow commodities exporters Norway, Australia and New Zealand. The U.S. dollar advanced 3.9 percent and the pound added 4.8 percent to lead gainers.

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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