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Canadian Dollar Rallies to Highest Since 2007 on Economic Growth

Canada’s dollar rose to its highest level since November 2007 versus the greenback after a report showed the nation’s economy grew in the fourth quarter more than economists forecast as exports surged.

The loonie, as the currency is known for the aquatic bird on the C$1 coin, climbed for a fourth day in its longest stretch of gains since January. The Canadian dollar had a 3 percent rally this month, its biggest monthly gain since September, before tomorrow’s meeting of the central bank, which is expected to boost borrowing costs in the second quarter.

“When you start talking about the Canadian dollar, you’ve got to start talking about some pretty strong fundamentals,” said Steve Butler, director of foreign-exchange trading at Bank of Nova Scotia’s Scotia Capital unit in Toronto. “It’s just one more piece of the puzzle that is putting pressure on the Bank of Canada to at least face up to reality that, at some point or another, they’re going to have to give us another rate hike.”

Canada’s currency appreciated 0.6 percent to 97.16 cents per U.S. dollar at 5 p.m. in Toronto, from 97.74 on Feb. 25. It touched 97.10 cents, the strongest level since Nov. 19, 2007. One Canadian dollar purchases $1.0292.

The loonie gained this month as crude oil, Canada’s biggest export, advanced on political turmoil in Libya, which reduced supplies. Crude for April delivery in New York dropped 1 percent to $96.89 a barrel after touching $103.41 a barrel on Feb. 24, the highest level since Sept. 29, 2008.

BOC Rate Outlook

The Bank of Canada, which led the Group of Seven nations with three interest-rate increases last year, is expected to boost its benchmark by a quarter-percentage point in the second quarter, according to the average forecast in a Bloomberg News survey of 19 economists.

“The data today supports the fact that the Bank of Canada needs to turn the ship and raise rates,” said Greg Anderson, a currency strategist at Citigroup Inc. in New York. “We expect them to use tomorrow to prep the market for a rate hike in April.”

The central bank will hold its target rate tomorrow at 1 percent, where it has been since September, according to all 29 economists in a Bloomberg News survey.

Future increases in borrowing costs would be “carefully considered” because the recovery is threatened by a strong currency and Europe’s fiscal crisis, the Bank of Canada said in its Jan. 18 statement.

Government Bonds

Government 10-year bonds were little changed after rising for the previous six days. The yield increased less than one basis point, or 0.01 percentage point, to 3.30 percent. The price of the 3.50 percent security maturing in June 2020 dropped 7 cents to C$101.61.

Canada’s gross domestic product expanded at a 3.3 percent annual rate in the fourth quarter, Statistics Canada reported today. The median forecast of 24 economists in a Bloomberg News survey was for a 3 percent pace.

Exports, which equaled 32 percent of Canada’s economy in 2009, rose 4 percent in the fourth quarter -- the biggest percentage gain since the second quarter of 2004. Crude oil shipments rose 30 percent to a record.

“The concern was the strong Canadian dollar was going to crush our export economy, and what you’re seeing is the biggest component of GDP was exports,” said Firas Askari, head currency trader at Bank of Montreal in Toronto.

Statistics Canada also reported today that the country’s fourth-quarter current account deficit narrowed to C$11 billion ($11 billion) from a revised record C$17 billion shortfall. Economists predicted a C$9.7 billion deficit in the account, a broad measure of trade in goods, investment and services.

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