Canada Dollar in Longest Win Run Since March on Europe Debt Plan

Canada’s dollar registered a fourth weekly advance in the longest streak of gains since March as a plan by Europe’s leaders to address the region’s debt crisis sparked demand for growth-sensitive assets.

The loonie, as the currency is nicknamed, strengthened beyond parity with the greenback and was set for the biggest monthly gain versus its U.S. counterpart since July 2009. It fell versus the majority of its most-traded counterparts after Bank of Canada policy makers cut the nation’s economic growth forecast. Jobs growth may have slowed during October, according to a Bloomberg News survey before the Nov. 4 report.

“It’s very much overextended,” said Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp., in a telephone interview, meaning the loonie has appreciated too much, too quickly. “If you were a betting individual you would prefer owning U.S. dollars down here. We still have too many variables on the table.”

Canada’s currency touched 98.92 cents per U.S. dollar yesterday in Toronto, the strongest level since Sept. 20. It ended the week at 99.17 cents, up 1.5 percent. One Canadian dollar buys $1.0084.

Central Banking

“Event risk” next week, including interest-rate decisions by the European Central Bank and the Federal Reserve, as well as U.S. and Canadian employment data, means “policy leaders have a lot to answer for,” said Oanda’s Popplewell. “I’m a willing seller of the loonie down here.”

Canada’s government bonds fell, pushing the 10-year note’s yield higher by seven basis points, or 0.07 percentage point, to 2.43 percent. The yield touched a record low 1.994 percent on Oct. 4. The price of the 3.25 percent security maturing in June 2021 dropped 60 cents this week to C$107.

Canada will sell C$3 billion ($3 billion) of three-year bonds on Nov. 2. The securities will mature in February 2015.

Government bonds have lost 1.5 percent this month, the most since January 2009, trimming gains this year to 6.1 percent, according to a Bank of America Merrill Lynch index.

European Union leaders agreed this week to boost the region’s rescue fund capacity to 1 trillion euros ($1.4 trillion) and persuaded holders of Greek bonds to accept a 50 percent writedown on the country’s debt.

Italy’s Debt

The Canadian dollar trimmed its weekly gain yesterday as European debt concern rebounded after Italy sold less than its maximum target at a bond auction and Fitch Ratings said part of the plan to contain debt turmoil amounts to a Greek default.

“We’re not seeing too much follow-through on the risk rally,” said Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York, in a telephone interview. “There’s still a lot of implementation risk.”

The Reuters/Jefferies CRB Index of raw materials climbed 3.9 percent this week. Copper increased 15 percent, the most since 1988. Crude oil futures gained 6.8 percent to $93.50 a barrel. The Standard & Poor’s 500 Index rose 3.8 percent. Canada’s dollar tends to rise and fall with stocks and commodities.

The loonie was the fourth-worst performer among the U.S. dollar’s 16 most-traded counterparts this week. It lost the most, or 4.6 percent, against the Brazilian real.

Growth Ranks

“Canada’s dollar is underperforming other growth currencies,” said Oanda’s Popplewell. “The risk-reward is rather limited.”

Volatility in the Canadian dollar versus the greenback reached the lowest level in more than a month. One-month implied volatility on the currency pair touched 11 percent yesterday, the lowest level since Sept. 21. It climbed as high as 16 percent on Oct. 4. The average during the past five years is 11.6 percent.

Implied volatility, which traders quote and use to set option prices, signals the expected pace of swings in the underlying currency.

Canada’s employers added 15,000 jobs to payrolls last month, compared with a gain of 60,900 jobs in September, according to the median of 24 economist forecasts compiled by Bloomberg. Statistics Canada is due to release the data on Nov. 4 at 7 a.m.

The loonie has dropped 4.4 percent this year, the second-worst performance in a gauge of 10 developed-nation currencies, according to Bloomberg Correlation-Weighted Currency Indexes. The greenback is down 5.1 percent. The yen is up 2.3 percent.

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