Canada Dollar Gains as Fed Minutes Sustain Stimulus Speculation

Canada’s dollar rose against its U.S. counterpart after minutes of June’s Federal Reserve meeting showed “a few” policy makers supported expanding monetary stimulus measures.

The currency briefly pared gains as stocks fell amid disappointment the U.S. central bank didn’t provide a stronger signal of plans to bolster the economy of Canada’s largest trading partner. It climbed earlier along with its Australian and New Zealand counterparts as commodities rose. Canada’s May merchandise trade deficit was larger than forecast as imports reached a record level, Statistics Canada reported in in Ottawa.

“People are turning around and taking risk off,” said John Curran, a senior vice president in Toronto at CanadianForex Ltd., an online foreign-exchange dealer, in a telephone interview. “You’ve got half the market saying buy Canada against this, sell Canada against those, and that’s why you’re getting a muddied picture against the U.S.”

Canada’s currency, nicknamed the loonie, appreciated 0.03 percent to C$1.0198 per U.S. dollar at 5 p.m. in Toronto. One Canadian dollar buys 98.07 U.S. cents.

The Standard & Poor’s 500 Index was little changed, after falling as much as 0.6 percent, while the Thomson Reuters/Jefferies CRB Index of raw materials added 0.7 percent.

Annual Prices

The loonie, as the currency is nicknamed, has traded this year as strong as 98 cents per U.S. dollar on April 27 and as weak as C$1.0447 on June 4.

“We’re in tight summer ranges,” said Firas Askari, head currency trader in Toronto at Bank of Montreal in a telephone interview. “I’m not highly optimistic about volatility this summer, which in our business is not a good thing.”

Government bonds fell, pushing the yield on the nation’s 10-year benchmark debt up three basis points, or 0.03 percentage point, to 1.68 percent. The 2.75 percent securities maturing in June 2022 fell 26 cents to C$109.72.

The Bank of Canada sold C$3.4 billion ($3.3 billion) of five-year notes today at a yield of 1.24 percent, compared with 1.53 percent at the previous sale May 9. The notes mature Sept. 1, 2017 and carry a coupon of 1.5 percent.

The bid-to-cover ratio -- the amount bid relative to the amount offered -- was 2.65 times, compared with an average of 2.41 times at the past five auctions.

Yield Forecasts

Economists have cut their yield forecasts for Canadian government bonds during the past month amid signs of weakness in the U.S. economy and speculation the central won’t raise its benchmark interest rate this year.

The benchmark 10-year bond will yield 2.08 percent by year-end, according to the median of a survey of 16 economists, compared to last month’s median of 2.15 percent. Yields will rise to 2.85 percent by the end of 2013, down 5 basis points from the prior survey. The 10-year note currently yields 1.65 percent.

“A few members expressed the view that further policy stimulus likely would be necessary to promote satisfactory growth in employment and to ensure that the inflation rate would be at the Committee’s goal,” according to the record of the Federal Open Market Committee’s June 19-20 gathering released today in Washington.

The FOMC met before a Labor Department report last week showing that companies hired 80,000 workers in June, fewer than forecast, and the unemployment rate held at 8.2 percent for a second month.

Canada’s merchandise trade deficit was the widest in almost a year as energy exports fell.

The deficit of C$793 million exceeded the C$430 million shortfall that was the median forecast in a Bloomberg News survey of 22 economists. The agency also boosted its April deficit estimate to C$623 million from C$367 million.

The loonie has gained 2 percent this year among 10 developed-nation currencies in Bloomberg Correlation Weighted Indexes, with the U.S. dollar adding 1.8 percent.

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