Canadian Dollar in Weekly Gain Versus U.S. Peer as Stocks Rise

Canada’s dollar posted the biggest weekly gain of the year versus its U.S. counterpart as stocks rose, boosting demand for higher-yielding assets.

The Canadian currency erased earlier losses as European finance officials prepared this weekend to discuss a potential bailout of Spain. Bank of Canada policy makers reiterated on June 5 that interest-rate increases may be necessary as the economy expands. A government report today showed job growth exceeded economists’ expectations for a third month.

“There are three big themes driving markets -- Europe, the global-growth outlook and central-bank response,” said Camilla Sutton, chief currency strategist at Bank of Nova Scotia’s Scotia Capital in Toronto. “Domestic data is reasonably supportive of the trends that are already in place, and the Bank of Canada maintained a fairly hawkish tone. The Canadian dollar was able to rally.”

Canada’s currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, rose 1.4 percent since June 1. It was little changed at C$1.0266 per U.S. dollar at 5 p.m. in Toronto after declining as much as 0.7 percent. One Canadian dollar buys 97.46 cents.

Canada is prepared to take additional measures to bolster liquidity in its own financial system if the global economic situation worsens, Canadian Finance Minister Jim Flaherty told reporters in Quebec City, adding he expects the country’s economy to record “modest” growth this quarter.

The loonie pared losses as crude oil rebounded, eking out its first weekly rise in six on the possibility that discussions by European finance officials this weekend would yield a bailout for Spain.

Government bonds were little changed, with benchmark 10-year securities yielding 1.81 percent.

Jobs Gains

The Standard & Poor’s 500 Index advanced 3.7 percent this week. The MSCI World Index of equities in developed nations gained 3.1 percent.

Canada, the world’s 10th largest economy, added 7,700 jobs last month, Statistics Canada said in Ottawa, following gains of 58,200 and 82,300 in the prior two months. A addition of 5,000 jobs was forecast in a Bloomberg survey.

Canadian housing starts were 211,400 at a seasonally adjusted annual pace in May, according to Canada Mortgage & Housing Corp. Economists had forecast a reading of 215,000, a separate survey showed.

Options traders are becoming less bearish on the Canadian dollar. The three-month so-called 25-delta risk reversal rate, which measures the premium charged for the right to buy the U.S. dollar against the loonie versus contracts to sell, traded at 2.8 percentage points, down from 3.3 percentage points at the end of last week.

AAA Rating

Risk reversal levels are still elevated. The rate climbed to 3.4 percentage points at the end of May, from as low as 1.35 in January. It averaged 1.1 percentage points since 2007.

The Canadian dollar is benefiting from the nation’s AAA credit rating and relatively sound government finances, along with prospects for higher yields after Bank of Canada Governor Mark Carney reiterated this week that raising interest rates may become appropriate as the economy expands.

The loonie is up 1 percent over three months, according to Bloomberg Correlation Weighted Indexes. The greenback has gained 5.2 percent and the yen is up 8.2 percent. The euro has slumped 1.5 percent.

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