Canadian Dollar Rises First Time in 3 Days as Commodities Rally

Canada (CANLNETJ)’s dollar strengthened for the first time in three days amid a rally in commodities including crude oil, the nation’s biggest export.

The currency, called the loonie, gained versus most major peers after a Canadian business barometer rose more than forecast. Crude oil, the nation’s biggest export, climbed from a five-month low. The loonie’s gains were tempered as investors awaited October employment reports for the U.S. and Canada this week that are forecast to show declines.

“Crude is up close to 2 percent, that’s probably filtering through and providing a bit of a bid for the loonie,” David Doyle, a strategist at Macquarie Capital Markets, said by phone from Toronto. “Commodities are up generally and the loonie, which is seen as a commodity type of currency, probably has some benefit from that.”

The loonie, nicknamed for the image of the aquatic bird on the C$1 coin, advanced 0.4 percent to C$1.0418 per U.S. dollar at 5 p.m. in Toronto. The currency slid Oct. 30 to C$1.0497, the weakest level since Sept. 6. One Canadian dollar purchases 95.99 U.S. cents.

The cost to insure against declines in the currency versus its U.S. peer rose to a three-week high. The three-month so-called 25-delta risk-reversal rate reached 1.29 percent, the highest level since Oct. 17. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

Volatility Gauge

Implied volatility for three-month options on Canada’s dollar versus its U.S. counterpart touched 6 percent, the highest intraday level since Oct. 28. The measure is used to set option prices and gauge the expected pace of currency swings. The average for this year is 6.7 percent.

The U.S. dollar fell to C$1.0398 on Nov. 4, approaching its 100-day moving average at C$1.0386, before strengthening.

“All the technicals suggest dollar-Canada should be moving higher,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia, by telephone from Toronto. “Earlier this week we made an attempt to break down below the 100-day moving average, and dollar-Canada failed to do that and has since bounced back higher. That could suggest there’s some near-term upside pressure.”

Canada’s benchmark 10-year government bond was little changed, yielding 2.53 percent. The price of the 1.5 percent security maturing in June 2023 slipped 1 cent to C$91.28.

Bond Auction

The Bank of Canada auctioned C$3.4 billion ($3.3 billion) of five-year debt at an average yield of 1.907 percent. The 1.75 percent securities mature in March 2019. The average yield at the Aug. 28 sale of five-year notes was 1.957 percent.

Today’s offering drew $8.9 billion in bids. The coverage ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.63, versus an average of 2.62 at the past five auctions of the maturity.

Futures of crude oil rallied as much as 2.2 percent to $95.40 a barrel in New York before trading at $94.90, up 1.6 percent. They closed yesterday at $93.37, the lowest level since June. Standard & Poor’s GSCI Index (SPGSCI) of 24 commodities increased for the first time in seven days, gaining 0.5 percent.

A discount on Canadian oil declined from a 10-month high. The Western Canada Select Crude Oil Differential narrowed to $41.20 a barrel after reaching $42 yesterday, the most since the record $42.50 reached in December.

‘U.S. Numbers’

“Any time you see oil appreciate, that tends to be supportive of Canada’s currency,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in phone interview. “But I just think the broader market move is one where the dollar has ceded some ground on caution before the U.S. numbers.”

U.S. employers added 120,000 positions last month, versus 148,000 in September, economists in Bloomberg survey forecast before data due in Washington on Nov. 8. U.S. economic growth in the third quarter slowed to 2 percent, from 2.5 percent in the previous period, a report tomorrow is projected to show.

Canada’s employers added 11,000 jobs in October, a separate Bloomberg survey showed before a Nov. 8 report, compared with 11,900 the previous month and 59,200 in August.

The Canadian dollar added to gains today after a report on the website of Western University’s business school showed the Ivey purchasing managers’ index rose to 62.8 in October on a seasonally adjusted basis, the highest since May, following a September reading of 51.9. Economists surveyed by Bloomberg predicted the gauge would reach 52.0. Readings of more than 50 indicate purchasing by governments and companies advanced.

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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