Canadian Dollar Strengthens for Fourth Week as Commodities Rise

The Canadian dollar rose for a fourth week of gains against its U.S. counterpart, the longest stretch of advances since October, on a rise in commodities and speculation the U.S. recovery will spur growth in Canada.

The loonie, as the currency is nicknamed, was little changed today after earlier falling the most in eight days as new Chinese measures to tighten liquidity damped demand for currencies tied to commodities. It reversed the retreat as crude oil, the nation’s biggest export, pared losses and global stocks erased declines.

“Investors see signs of life in the U.S. starting to spill over into Canada, and despite the risk-off sentiment overnight with China hiking reserve requirements and commodities taking a hit, Canada’s still very resilient,” said Steve Butler, director of foreign-exchange trading in Toronto at Bank of Nova Scotia’s Scotia Capital unit. “If you look around for reasons to not like Canada, they are few and far between.”

The Canadian dollar was little changed at 99.09 cents per U.S. dollar at 5 p.m. in Toronto, compared with 98.92 cents yesterday. It earlier weakened as much as 0.9 percent, the most since Jan. 4. The loonie has strengthened 0.3 percent this week against the greenback, from 99.35 cents on Jan. 7.

Government bonds fell, pushing up the yield on Canada’s benchmark 10-year note two basis points to 3.27 percent, from 3.25 percent yesterday. The price of the 3.5 percent security due in June 2020 decreased 14 cents to C$101.86.

Oil Pares Loss

Crude oil for February delivery rose 0.3 percent to $91.67 a barrel in New York after earlier dropping as much as 1.4 percent to $90.10. It has risen 4.1 percent for the week. The Thomson Reuters/Jefferies CRB index of raw materials increased 2.8 percent for the week.

The MSCI World Index rose 0.3 percent today after dropping as much as 0.5 percent. The S&P/TSX Composite Index rose 0.5 percent.

The loonie and other currencies linked to global growth including the Australian dollar fell earlier after China announced an increase in reserve ratio requirements for banks. The requirements will rise by 50 basis points starting Jan. 20, the People’s Bank of China said on its website today. A basis point is 0.01 percentage point.

China overtook the U.S. last year as the world’s biggest economy when measured in terms of purchasing power, according to Arvind Subramanian, senior fellow at the Peterson Institute for International Economics in Washington.

“The surprising timing of the hike in the reserve requirement ratio led to an immediate sell-off in Aussie and Canada,” said Paresh Upadhyaya, head of Americas G-10 currency strategy at Bank of America Corp. in New York. “There is some concern of China being behind the curve and therefore being forced to do more than they would have to otherwise. That’s why you saw an immediate sharp reaction in the commodity currencies.”

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