Canadian Dollar Gains With Currencies of Commodity Exporters

The Canadian dollar rose with the currencies of fellow commodity exporters Australia and New Zealand amid bets raw-material prices have reached a bottom.

The currency strengthened against the greenback after posting its biggest annual decline in five years in 2013 amid signs growth is trailing that of the U.S. A tepid recovery has prompted the Bank of Canada to warn of deflationary risks and abandon leanings toward higher rates, even as the Federal Reserve begins to withdraw monetary stimulus.

“The market was short all the commodity currencies and traders that are in are looking to take out stops in those positions and as a result we’re getting a bit of position trimming,” Greg Anderson, head of global foreign exchange strategy at Bank of Montreal, said by phone from New York.

The loonie, as Canada’s currency is known for the image of the aquatic bird on the C$1 coin, gained 0.3 percent to C$1.0635 per U.S. dollar at 5 p.m in Toronto. One loonie purchases 94.03 U.S. cents. The currency dropped 6.6 percent last year, the biggest loss against the greenback since 2008.

The Australian dollar climbed 0.4 percent to 89.45 U.S. cents after adding 1.1 percent, the biggest advance since Oct. 1. The Aussie dropped 14 percent versus the greenback last year, third worst of 16 major currencies. New Zealand’s dollar added 1.1 percent today.

Crude Oil

Bank of Canada Governor Stephen Poloz has said stronger growth will depend on increased exports as domestic consumer spending slows down. Crude oil, Canada’s largest export, dropped to the lowest level in a month today after falling 4.4 percent in the first two trading days of the year. It traded at $94.31. The Standard & Poor’s GSCI Index of 24 commodities dropped percent.

The Fed said on Dec. 18 it will cut its stimulus program of monthly bond purchases, known as quantitative easing, to $75 billion from $85 billion starting this month. Policy makers will pare purchases by $10 billion in each of its next meetings before ending the program late this year, the median forecast of analysts surveyed by Bloomberg on Dec. 19 indicates.

“We expect that the Canadian dollar’s weakening trend from 2013 will extend into 2014,” Bank of Tokyo-Mitsubishi UFJ strategists Derek Halpenny and Lee Hardman wrote in a note to clients today. “The Fed’s decision to begin to taper QE and the strengthening U.S. economic growth outlook in the second half of 2013 have helped to lift the U.S. dollar” while Poloz’s focus on low inflation is prompting him to leave “the door more ajar to further easing if required ahead.”

Yield Premium

The difference in yields between Canadian and U.S. 10-year notes -- one gauge of relative interest-rate expectations -- is 24 basis points, close to the widest since February 2011. Canada’s 1.5 percent benchmark note due June 2023 fell 8 cents to C$89.72, pushing the yield one basis point higher to 2.75 percent. U.S. notes yield 2.99 percent.

The Canadian dollar has strengthened 0.9 percent in the past week against nine developed country peers tracked by Bloomberg Correlation-Weighted Currency Indexes. The dollar of fellow commodity exporter Australia gained 1.1 percent while New Zealand’s dollar jumped 1.8 percent. The greenback is little changed.

To contact the reporter on this story: 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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