Canadian Currency Fluctuates as Crude Oil Gains, Election Looms

Canada’s dollar fluctuated as crude oil, the nation’s biggest export, reached a two-week high, while opposition to Prime Minister Stephen Harper’s fiscal plan set the stage for a federal election as early as May.

The currency weakened earlier versus its U.S. counterpart as concern that Europe’s leaders are struggling to find a comprehensive solution to the region’s debt crisis damped appetite for assets related to economic growth. Michael Ignatieff, Canada’s Liberal leader, said his party will introduce a motion of no confidence in the government that will be debated March 25.

“There’s some mild weakness with all the political posturing, but at the end of the day the Canadian dollar is still a longer-term buy,” said John Curran, a senior vice president in Toronto at CanadianForex Ltd., an online currency dealer. “We’re massively stable compared to everyone else.”

Canada’s currency, also known as the loonie for the image of the aquatic bird on the C$1 coin, depreciated less than 0.1 percent to 98.16 cents per U.S. dollar at 5 p.m. in Toronto, from 98.07 cents yesterday. It weakened as much as 0.4 percent and rose as much as 0.2 percent. It touched the strongest level in three years, 96.68 cents, on March 9 and reached a one-month low, 99.74 cents, on March 15. One Canadian dollar buys $1.0187.

The loonie dropped 0.7 percent over the past month in a basket of 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Currency Indexes. The euro rose 1.5 percent, while the U.S. dollar fell 0.8 percent.

Oil Climbs

The Canadian dollar erased an earlier loss as crude oil for May delivery rose as much as 2.3 percent to $106.34 a barrel in New York. It was the highest level since March 7, when the commodity cost the most in 29 months.

The Standard & Poor’s 500 Index rose 0.3 percent after earlier dropping as much as 0.8 percent.

“Sovereign flows are consistently purchasing the Canadian dollar at opportune levels, and today is no different,” CanadianForex’s Curran said.

Leaders of all three opposition parties said C$7.6 billion ($7.7 billion) in new measures announced yesterday by Finance Minister Jim Flaherty in his budget presentation weren’t enough to warrant their support. Opposition lawmakers hold a majority of seats in the House of Commons.

Gilles Duceppe, leader of the Bloc Quebecois, and Jack Layton of the New Democratic Party told reporters in Ottawa they will support the Liberal no-confidence motion.

Harper, speaking today to reporters in Ottawa, said Canada’s economy is not a political game and the opposition’s rejection of the budget will hurt the nation.

Portuguese Vote

The loonie strengthened 0.7 percent against the euro to C$1.3824. The shared currency fell versus most of its peers as Portugal’s parliament rejected the government’s deficit-cutting plan before the European Union opens a two-day summit tomorrow on efforts to deal with the region’s debt crisis. The vote raised the chance the country will need a bailout.

EU leaders are divided over how to let the European Financial Stability Facility, the euro-region’s stopgap fund, spend its full capacity of 440 billion euros ($624 billion) to ease credit woes.

“Europe is front and center,” said Steve Butler, director of foreign-exchange trading in Toronto at Bank of Nova Scotia’s Scotia Capital unit. “With the summit tomorrow, there’s more potential for something negative to happen than for something positive. It’s uncertainty that’s roiling the markets right now and causing people to rethink risk.”

Bonds Fall

Government bonds fell, pushing the yield on the benchmark 10-year note up two basis points, or 0.02 percentage point, to 3.20 percent. The price of the 3.5 percent security due in June 2020 decreased 16 cents to C$102.35.

Canada sold C$3.2 billion of three-year notes at an average yield of 2.022 percent, according to the Bank of Canada’s website. The 2 percent securities, which mature in March 2014, attracted bids of C$8.2 billion, 2.6 times the amount offered.

The nation’s borrowing this fiscal year will match a record as the government begins a three-year plan to set aside C$35 billion in reserve funds to help safeguard against a financial-market collapse.

Canada will increase deposits with financial institutions and the central bank by C$25 billion over the next three years, according to budget documents released yesterday. In addition, Canada’s liquid foreign-exchange reserves will increase by $10 billion in the next year.

Note Sales

Sales of two-, three- and five-year notes will all be increased in the fiscal year that starts April 1, Flaherty said yesterday in Ottawa. Canada’s forecast C$102 billion in bond sales in 2011-12 would match the record set in 2009-10.

A federal election campaign may make the Bank of Canada more hesitant to raise interest rates as lawmakers likely focus on Harper’s record on fiscal and economic issues.

An election lowers the odds of a rate increase at their meeting next month as bank Governor Mark Carney would try to avoid actions that could be used on the campaign trail, said Angelo Melino, a former central-bank adviser and a University of Toronto economics professor.

Policy makers raised the benchmark rate to 1 percent last year and have kept it unchanged since then.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE