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Canada Dollar Climbs After U.S. ISM Data Boosts Demand

Canada’s dollar climbed against a majority of its most-traded counterparts after manufacturing data in the U.S., the nation’s biggest trading partner, beat median economists’ forecasts.

The Canadian currency rose last month, reaching a seven-month high, after policy makers indicated borrowing costs may rise amid stronger inflation and economic growth. It gained against Australia’s dollar by the most this year after the South Pacific nation’s central bank cut interest rates by more than projected.

“Positive developments for the U.S. economy are going to help the Canadian dollar,” said Greg Anderson, the North American head of G-10 currency strategy at Citigroup Inc. in New York, in a telephone interview. “The Canadian dollar is attractive and we can move below 98 cents in dollar-Canada and somewhat decisively if the Bank of Canada continues to make hawkish noises.”

Canada’s currency, nicknamed the loonie, rose 0.2 percent to 98.54 cents per U.S. dollar at 5 p.m. in Toronto. It reached 98 cents on April 27, the strongest since September. One Canadian dollar buys $1.0148.

The Standard & Poor’s 500 Index added 0.6 percent, while crude oil futures advanced 1.1 percent to $105.98 in New York.

Bonds Fall

Government bonds fell, pushing benchmark 10-year yields up one basis point, or 0.01 percentage point, to 2.05 percent. The price of the 3.25 percent bonds due in June 2021 lost 10 cents to C$109.96.

The loonie rose as much as 1.2 percent, the most this year, to C$1.0172 against the Australian dollar, after the RBA cut interest rates by 50 basis points, or 0.5 percentage point, to 3.75 percent. The median forecast of economists in a Bloomberg survey was for a 25-basis point cut.

“I like selling the Australian dollar here versus the Canadian dollar,” said Kit Juckes, head of foreign-exchange research in London at Societe Generale SA, in an e-mail. The Australian dollar versus the yen “looks ugly” if U.S. stocks decline, he said.

The RBA move prompted traders to trim bets on the pace of rate increases by the Bank of Canada. Implied odds of an increase at the Bank of Canada’s Sept. 5 policy meeting fell to 53 percent today, representing about 17 basis points of tightening, according to overnight index swaps. At the end of last week, odds had climbed to 75 percent, with more than a full quarter-percentage point of increases priced in.

Carney View

Bank of Canada Governor Mark Carney said after a speech in Toronto today that higher interest rates “may become appropriate.” He also said his country “has a household debt problem.”

Canadian Finance Minister Jim Flaherty said today fiscal fundamentals are supporting the country’s dollar. Speaking to reporters after a speech to a manufacturing convention in Kitchener, Ontario, Flaherty said factories have shown a positive attitude to an appreciating currency, and that nobody is expecting the dollar to weaken sharply.

U.S. manufacturing unexpectedly expanded in April at the fastest pace in 10 months. The Institute for Supply Management’s factory index climbed to 54.8 last month, exceeding the most optimistic forecast in a Bloomberg News survey, from 53.4 in March, the Tempe, Arizona-based group’s report showed today. Readings greater than 50 signal growth. The median forecast in the Bloomberg survey called for a drop to 53.

Economic Data

Canada’s dollar fell the most in one month against its U.S. counterpart yesterday after a report showed the nation’s gross domestic product unexpectedly shrank in February.

“Despite yesterday’s retracement following the weak February GDP report, the 98.76 cents level has barred the way of further rallies” of the U.S. dollar against the loonie, George Davis, chief technical analyst for fixed-income and currency strategy at Royal Bank of Canada’s RBC Capital Markets unit, wrote in a report to clients. “This development confirms that bearish sentiment still remains prevalent” for the greenback, with the next “downside support targets” to watch at 97.81 cents and 97.28 cents, he wrote.

The loonie is up 0.8 percent in the past month for the third-best performance among 10 major currencies tracked by Bloomberg Correlation Weighted Indexes. The yen has gained 3 percent, while the pound has added 1.6 percent.

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