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Canadian Currency Climbs Against Yen as Central Banks Intervene

March 18 (Bloomberg) -- The Canadian dollar gained the most against the yen in 10 months as the Group of Seven nations, including Canada, intervened in the foreign-exchange markets to stabilize the Japanese currency.

Canada’s dollar, called the loonie for the image of the aquatic bird on the C$1 coin, had its biggest weekly loss in four months versus the greenback after a nuclear power-plant crisis caused by Japan’s worst earthquake damped investor appetite for higher-yielding currencies. Data showed Canada’s core inflation rate slowed to a record low.

“When we see such a coordinated effort, the markets listen,” said Darren Richardson, senior corporate dealer in Toronto at CanadianForex Ltd., an online currency firm. “The Canadian dollar is not the focus of the market right now.”

Canada’s currency strengthened as much as 4.3 percent against the yen, the biggest intraday jump since May, to 83.52 before trading at 81.86 yen at 5 p.m. in Toronto, up 2.2 percent. The loonie rose 0.1 percent to 98.43 cents per U.S. dollar, compared with 98.48 cents yesterday. It lost 1.1 percent for the week. One Canadian dollar buys $1.0159.

The American dollar fell against most of its major counterparts as investors’ appetite for higher-yielding assets improved. The U.S. is Canada’s biggest trade partner.

The G-7 nations agreed in a conference call yesterday to move jointly to intervene in the currency market, the first coordinated effort since 2000, after a soaring yen threatened Japan’s recovery from the earthquake on March 11. Central banks intervene by selling or buying currencies to influence prices.

Military Intervention

The loonie erased gains versus the U.S. dollar as crude oil reversed an advance after Libya’s foreign minister, Moussa Koussa, said in a televised news conference the North African nation is ceasing all military action and will start talks with rebels. The United Nations Security Council approved military intervention to protect civilians in Libya. Oil, Canada’s biggest export, had climbed to a one-week high on concern the turmoil would disrupt supplies.

Crude for April delivery increased as much as 2.2 percent to $103.66 per barrel in New York before trading at $101.62.

The loonie dropped 1 percent over the past month in a basket of 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Currency Indexes. The yen gained 2.3 percent, while the greenback lost 1.3 percent.

Canadian 10-year government bonds rose, pushing the yield down two basis points, or 0.02 percentage point, to 3.17 percent. It fell to 3.12 percent on March 15, the lowest level since Jan. 4. The price of the benchmark 3.5 percent note maturing in June 2020 increased 12 cents to C$102.65.

Loonie Pares Gain

The Canadian dollar trimmed gains against the yen after the Bank of Canada said in a statement on its website that it had participated in the coordinated intervention, selling an undisclosed amount of the Japanese currency.

“The market may have gotten a bit ahead of itself in the Canadian market,” said C.J. Gavsie, managing director for foreign-exchange trading in Toronto. “Traders waited for a bit more intervention, didn’t get it and some of the Canadian dollars that were picked up in a run are now being sold off.”

Canada held $252 million worth of yen, or 0.4 percent of the country’s total international reserves, the finance department said March 3.

The inflation rate in Canada, excluding volatile items such as gasoline, slowed to a record low on a drop in prices for hotels and cars, the nation’s statistics agency said today.

Lowest on Record

The core inflation index, which excludes eight volatile items, rose 0.9 percent in February from a year earlier, after a 1.4 percent gain in January, Statistics Canada reported. That’s the lowest rate since records for the core rate began in 1984. A Bloomberg News survey forecast a 1.1 percent rise.

The Bank of Canada has kept its benchmark rate at 1 percent since September after raising it three times last year. Policy makers reiterated on March 1 that underlying inflation pressures are “subdued” and “considerable slack” remains in the economy. The central bank said it will carefully consider future increases in an economic recovery that’s “slightly faster” than they forecast.

To contact the reporter for this story: Alexandra Harris in New York at aharris48@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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