Canadian Dollar Strengthens Amid M&A Activity Boost Bets

Canada’s dollar strengthened the most in almost a year as its U.S. counterpart weakened and traders speculated that the acquisition of coffee-shop chain Tim Hortons Inc. will increase demand for the local currency.

The loonie, as it is referred to because of the image of the waterfowl on the C$1 coin, was the biggest gainer among major currencies against the greenback. The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 leading global peers, fell after rising yesterday to the highest level since Feb. 3.

“We’re in a dynamic where the Canadian dollar should do well from the U.S. recovery and the U.S. dollar has lost its momentum a little bit,” Tom Fitzpatrick, Citigroup Inc.’s chief technical foreign-exchange strategist, said by telephone from New York. “There’s speculation about whether the Burger King purchase will result in the need for Canadian dollars.”

The loonie gained 0.8 percent to C$1.0865 per U.S. dollar as of 5 p.m. in Toronto, the biggest one-day increase since Sept. 6, 2013. One Canadian dollar buys 92.04 U.S. cents.

Fitzpatrick anticipates the loonie will outperform Group of 10 currencies including the dollar, euro and yen in the short-term, rising to as high as $1.0735 over the next week.

Burger King Worldwide Inc. has lined up $12.5 billion in financing to fund the cash portion of the acquisition. Currency traders are speculating Burger King will convert the funds to Canadian dollars to pay for Oakville, Ontario-based Tim Hortons, creating demand for the loonie.

Market Perception

“You don’t know whether the firm doing the acquisition is hedged, so you can’t really articulate what it means from the FX side,” Fitzpatrick said. “It’s actually people just speculating -- it’s not known whether it will be the case. It affects people’s perception about what supply and demand will be for the currency.”

The headquarters of the combined company will be in Canada, which has a lower tax rate than the U.S. The deal, which is still subject to the standard approvals, for Tim Hortons follows Valeant Pharmaceuticals International Inc.’s merger with Canada’s Biovail Corp. in 2010, which sparked the latest so-called tax-inversion wave.

The Canadian dollar slumped in March to C$1.1279, the weakest level since July 2009, after the Bank of Canada said it couldn’t rule out a interest-rate cut to head off the risk that low inflation would slip into deflation.

To contact the reporter on this story: Cecile Gutscher in Toronto at cgutscher@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Kenneth Pringle

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