Canadian Dollar Rallies Most This Year on Fed Support

Canada’s dollar rose the most this year versus its U.S. counterpart, tracking equities and commodities, as Federal Reserve officials indicated interest rates will remain low to support the economic recovery.

The currency, also known as the loonie, advanced from its lowest level since January as a rally in Australia’s dollar following a stronger-than-forecast employment report led other commodity-related tenders higher. Canada’s currency pared gains for about an hour in trading and then resumed its advance after a report showed Canada’s trade surplus narrowed.

“The market is comfortable in selling the U.S. dollar today, buying equities and commodities,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, in a telephone interview. “The Canadian dollar, despite the poor showing at the 8:30 number, has been an outperformer.”

Canada’s currency appreciated 1 percent to 99.43 cents per U.S. dollar at 5 p.m. in Toronto, the biggest gain on a closing basis since Nov. 30, when it advanced 1.4 percent. It dropped yesterday to C$1.0053, the weakest level since Jan. 31. One Canadian dollar buys $1.0058.

South Africa’s rand gained 1.7 percent to 7.8722 per U.S. dollar, while the Australian dollar appreciated 1.3 percent to $1.0438, New Zealand’s currency gained 1.2 percent to 82.78 U.S. cents and Norway’s krone rose 0.8 percent to 5.7658 per dollar.

‘Pulled Higher’

“The Canadian dollar is being pulled higher by the commodity currencies generally, with the Aussie leading the way,” said Adam Cole, global head of foreign-exchange strategy in London at Royal Bank of Canada’s RBC Capital Markets unit, in a telephone interview.

The Canadian currency is up 3.3 percent during the past six months for the second-best performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Currency Indexes, trailing the New Zealand dollar, which was up 5.1 percent higher.

The loonie pared gains earlier today after Statistics Canada reported the nation’s merchandise trade surplus narrowed to C$292 million ($292 million) in February from a revised C$1.95 billion because of a decline in car and energy-products exports. The median forecast of 19 economists in a Bloomberg News survey was for a C$2.2 billion surplus.

Government bonds dropped for a second straight day, with benchmark 10-year yields increasing three basis points, or 0.03 percentage point, to 2.05 percent. The yields fell on April 10 to below 2 percent for the first time since March 13.

Bank of Canada

Bank of Canada policy makers meet next week to determine interest rates. The central bank has held its target overnight rate at 1 percent since September 2010, even as annual inflation has exceeded the 2 percent target for more than a year.

“The main thing that prevents the Bank of Canada from tightening, of course, is that there’s probably a limit to which it will diverge from U.S. policy,” said RBC’s Cole, who predicts the Canadian dollar will weaken to C$1.02 by the end of June because of the “generally slightly negative backdrop for risk in the second quarter.”

New York Fed President William C. Dudley said in response to an audience question after a speech in Syracuse, New York, that he agrees with the central bank’s March 13 statement backing low rates through at least late 2014. Fed Vice Chairman Janet Yellen endorsed the central bank’s “highly accommodative” policy yesterday, saying the Fed probably won’t meet its goal of full employment for years while inflation remains in check.

The Standard & Poor’s 500 Index increased 1.4 percent. The S&P/TSX Composite Index advanced 1.6 percent. Crude oil for May delivery rose 1.1 percent to $103.67 a barrel in New York.

The Canadian currency will rally to 98 cents per U.S. dollar by year-end, according to the median forecast of economists in a Bloomberg News survey.

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