Canada Dollar Climbs to Five-Month High on ECB Loans, Balancing

Canada’s dollar rose to the highest level in more than five months against its U.S. counterpart as the European Central Bank awarded a record amount of loans to euro-area banks to avert a credit crunch.

The currency rallied against all but one of its 16 most-traded peers, Taiwan’s dollar, as portfolio managers sold the U.S. dollar to rebalance holdings at month-end relative to stock gains. It has risen 1.3 percent this month versus the greenback. The U.S. economy grew last quarter more than forecast, data showed, and Federal Reserve Chairman Ben S. Bernanke damped bets policy makers will provide more monetary stimulus.

“We seem to have seen a large amount of Canadian-dollar buying related to month-end,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit in Toronto. “It may also reflect the fact that the market is less leveraged to the Canadian dollar than say, the Australian or New Zealand dollars. When times are good, the Canadian dollar may not do as well, but when we hit a speed bump, it holds up.”

Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, appreciated 0.5 percent to 98.99 cents per U.S. dollar at 5 p.m. in Toronto. It strengthened to as much as 1.1 percent to 98.45 cents, the highest since Sept. 19. One Canadian dollar buys $1.0106.

The Canadian currency has gained 3.2 percent in 2012 versus the U.S. dollar on increased demand for higher-yielding assets. It fell 2.3 percent last year.

Euro, Yen

The loonie rose today versus the euro to its strongest in more than a week as the 17-nation currency dropped versus most major peers after 800 banks borrowed 529.5 billion euros ($712.2 billion) from the ECB. The central bank moved to boost liquidity amid the region’s sovereign-debt crisis. The Canadian currency gained as much as 1.7 percent to C$1.3163 per euro.

“European banks have borrowed more than expected and can invest in riskier assets; are they really going to invest in European equities or sovereign debt?” said Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp. “Eventually this excess liquidity is likely to depress euro front-end rates, further allowing investors to gravitate to the stronger U.S. equity market where the loonie is winning by association.”

Canada’s dollar climbed to a more than six-month high against Japan’s currency, strengthening as much as 1.8 percent to 82.28 yen. It appreciated 0.9 percent to C$1.0619 per Australian dollar and gained 1 percent to 82.53 cents to the New Zealand dollar. Australia and New Zealand, like Canada, are commodity exporters.

The Standard & Poor’s 500 Index fell 0.5 percent, trimming its monthly advance to 4.1 percent. The MSCI World Index of stocks in developed nations slid 0.3 percent on the day while gaining 4.7 percent in February.

‘Dreadful Range’

“The month-end flows into the Canadian dollar today have been the story,” said Steve Butler, managing director in Toronto at Bank of Nova Scotia’s Scotia Capital unit. “We’ve been stuck in a dreadful range all month, and we saw lots of momentum players buying the Canadian dollar on the move under support at 99.20 cents to 99.25 cents.” Support refers to the lower boundary of a trading range, in this case for the U.S. dollar against the loonie.

Before today, Canada’s currency had traded within a two-cent range versus the greenback since Jan. 26, between 99.07 cents and C$1.0071.

Note Auction

The Canadian government sold C$3.5 billion ($3.5 billion) of two-year notes due in May 2014, drawing an average yield of 1.116 percent, according to a statement on a Bank of Canada website. The last auction of two-year debt on Feb. 8 drew an average yield of 1.095.

Current two-year notes fell, pushing yields up three basis points, or 0.03 percentage point, to 1.10 percent. Yields on benchmark 10-year notes were little changed at 1.99 percent.

The Bank of Canada meets next week to determine interest rates. Policy makers have held the benchmark at 1 percent since September 2010 as concern that some European countries may face default tempers an annual inflation rate that has exceeded the central bank’s 2 percent target for 14 straight months.

“We still see gravity as the overriding influence in dollar-Canada as long as global metrics vis-a-vis risk and liquidity remain intact,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “The longer-term broader descending channel is intact,” he said, referring to a chart pattern of the greenback.

Crude Oil

Crude for April delivery increased as much as 0.9 percent to $107.43 a barrel in New York. It briefly dropped to $104.84 after the U.S. Energy Department said oil stockpiles rose last week, before trading at $106.85, up 0.3 percent. Crude, Canada’s biggest export, has advanced 8.7 percent in February, its first monthly gain since November, as sanctions tighten against Iran, OPEC’s second-biggest producer.

The commodity touched $109.95 a barrel on Feb. 24, the highest since May.

Canada’s dollar remained higher as U.S. equities reversed early gains after Federal Reserve Chairman Ben S. Bernanke’s testimony to Congress damped speculation the central bank would buy more assets under quantitative easing.

While Bernanke told Congress that keeping monetary stimulus is warranted, he said rising gasoline prices are likely to push up inflation temporarily and the drop in the unemployment rate has been more rapid than expected. The rate fell to 8.3 percent last month from 9.1 percent in August.

U.S. gross domestic product climbed at a revised 3 percent annual rate, the most since the second quarter of 2010, Commerce Department figures showed today in Washington.

The Canadian dollar gained 0.4 percent over the past week against nine developed-nation counterparts monitored by Bloomberg Correlation Weighted Currency Indexes. The U.S. dollar fell 0.8 percent, and the euro declined 0.1 percent.

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