Canada Dollar Advances Amid Speculation on North American Growth

The Canadian dollar rose against most major counterparts after reports from the U.S. and Canada fueled speculation the North American economy will grow faster than the rest of the world.

The currency was little changed against its U.S. peer, with bond markets in Canada and the U.S. closed for a holiday. Data on U.S. gross domestic product, Canadian housing starts and jobs in both countries beat economists’ forecasts last week in the latest signs the continent’s economy is accelerating.

“We’d like to think, and hold onto that thought, that things may be turning in the U.S.,” said Dean Popplewell, head analyst at the online currency-trading firm Oanda Corp., by phone from Toronto. “You’ve got to assume that’s going to drag Canada with it, and our currency. Yes, you’ll end up with a buy-North America mandate.”

The loonie, as the Canadian dollar is known for the image of the waterfowl on the C$1 coin, was little changed at C$1.0476 per U.S. dollar at 5:00 p.m. in Toronto. One loonie purchases 95.46 U.S. cents.

Canada’s dollar rose versus 9 of its 16 most-traded counterparts tracked by Bloomberg, including sterling and the Australian dollar.

“The Canadian dollar looks better on the crosses,” Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce, said by phone from London, referring to transactions involving currencies other than the U.S. dollar. “That’s consistent with growth looking a little better in North America as a whole, and the byproduct of that is that Canada will probably do a little better than those in the global environment.”

Loonie Strengthens

The pound fell 0.2 percent to C$1.6749 before the Bank of England publishes new forecasts in its quarterly inflation report this week. Australia’s dollar was the biggest loser against the greenback among Group of 10 currencies, weakening 0.3 percent amid bets an improving U.S. economy will move the Federal Reserve to advance a reduction in the stimulus that has buoyed riskier assets globally. The Australian currency declined 0.4 percent to 98 Canadian cents.

The cost to insure against declines in the Canadian currency versus its U.S. peer was at almost a three-week high. The three-month so-called 25-delta risk-reversal rate traded at 1.33 percent after touching 1.34 percent on Nov. 8, the most since Oct. 17. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

Currency Performance

The loonie has declined 2.2 percent this year against nine other developed-nation currencies tracked by the Bloomberg Correlation Weighted Index. The Australian dollar has fallen 7.5 percent, while the U.S. dollar has appreciated 4 percent and the euro has gained 5.8 percent.

The Canadian economy expanded 0.3 percent in August, the government reported Oct. 31, while the U.S. said Nov. 7 its annualized gross domestic product gained 2.8 percent in the third quarter from the previous three months. U.S. employers added 204,000 jobs in October, data showed Nov. 8, versus a Bloomberg survey’s forecast of 120,000.

Canadian housing starts totaled 198,282 in October at a seasonally adjusted annual pace, Ottawa-based Canada Mortgage & Housing Corp. said Nov. 8. That was up from 195,929 units in September. A Bloomberg survey forecast 190,800.

“You’ll probably see Canada outperform a little bit against the other G-10 currencies and probably lag against the U.S. dollar,” said Matthew Perrier, director of foreign exchange at Bank of Montreal, by phone from Toronto.

ECB Cut

Euro-area economic data this week may show the 17-nation region’s growth slowing, supporting European Central Bank President Mario Draghi’s decision last week to cut the bank’s key interest rate to a record 0.25 percent.

Gross domestic product in the region rose 0.1 percent in the third quarter, according to the median forecast of 41 economists in a Bloomberg News survey, after a 0.3 percent gain in from April through June.

The euro fell against the loonie to a six-week low of C$1.3887 on Nov. 7. The shared currency gained 0.3 percent today to C$1.4049.

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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