Canada Dollar Gains Versus Peers on Global-Stimulus View

Canada’s dollar rose against most of its 16 major counterparts amid speculation global central banks will take additional steps to sustain wavering economic growth, adding to risk appetite.

The currency reached a lifetime high against the euro yesterday as a report indicated the European Central Bank, which cut its benchmark rate July 5, is prepared to further increase monetary stimulus if the region’s financial crisis worsens. Federal Reserve minutes from its June meeting released this week showed some policy makers think additional stimulus may be required. The Bank of Canada is forecast to hold its policy rate unchanged on July 17.

“The tone has been set in the last week or so by the ECB rate decision,” Stephen Gallo, a foreign-exchange strategist at Credit Agricole SA in London, said in a telephone interview. “We had the Fed minutes out this week.”

Canada’s currency rose 0.5 percent this week to C$1.0141 per U.S. dollar in Toronto. It touched C$1.2378 per euro, the strongest level since the shared currency began trading in 1999. One Canadian dollar buys 98.61 U.S. cents.

The loonie rose 0.5 percent this week against its nine counterparts, according to the Bloomberg Correlation-Weighted Indexes. The U.S. dollar lost 0.1 percent.

Futures Reading

Futures traders decreased their bets that the Canadian dollar will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the Canadian dollar compared with those on a drop -- so-called net longs -- was 4,338 on July 10, compared with net longs of 8,698 a week earlier. Futures are agreements to buy or sell assets at a set price and date.

Most government bonds gained, pushing yields on benchmark 10-year bonds down five basis points, or 0.05 percentage point, to 1.63 percent. The security reached a record low of 1.615 percent on June 1. The 2.75 percent securities maturing in June 2022 rose 50 cents to C$110.15.

The country’s currency has declined 1.5 percent since the end of March against the greenback as futures on crude oil, Canada’s biggest export, have dropped about 15 percent in that period on speculation Europe’s debt crisis will weaken global growth, hampering demand for raw materials.

Crude oil futures rose 3.1 percent this week to $87.07 a barrel in New York.

Oil Correlation

The loonie is becoming more governed by fluctuations in crude oil prices, correlation studies show. The 30-day correlation coefficient between the Canadian dollar and crude-oil futures rose to 0.88 this week, close to the 0.89 level the relationship reached on June 29, the highest in Bloomberg records dating to May 1993, from 0.30 in February.

The ECB is prepared to ease monetary policy, including cutting its deposit rate further, if the region’s financial crisis worsens, according to a Medley Global Advisors report obtained by Bloomberg News.

“There’s a strong chance the U.S. dollar’s going to weaken,” Steven Saywell, head of currency strategy for Europe at BNP Paribas in London, said in a telephone interview. “Euro-dollar is the cross we would stay away from. We think the commodity currencies will continue to do very well against the U.S. dollar.”

Economic Data

Canada’s new home price index recorded its 14th straight gain in May, led by higher prices in Toronto, the government statistics agency said July 12. Economists predicted the index would rise 0.2 percent, according to the median estimate in a Bloomberg survey with 10 responses.

Businesses in Canada are less optimistic about their future sales on concern about the global economy, according to a Bank of Canada survey released July 9 that also shows companies’ hiring intentions matching a record high. The balance of opinion for sales during the next year fell to 15 percentage points in the central bank’s survey of about 100 executives.

The Bank of Canada’s interest-rate announcement may disappoint investors speculating that policy makers are reconsidering an end to stimulus measures, according to Deutsche Bank AG economists led by John Clinkard. Deutsche Bank recommended selling December 2012 bankers’ acceptance contracts.

Trading in overnight index swaps showed yesterday that odds the Bank of Canada will leave its target rate at 1 percent at its July 17 policy meeting were about 96 percent, according to Bloomberg calculations.

“The bank is going to stay on hold,” Matthew Perrier, Toronto-based director of foreign exchange at Bank of Montreal, said in a telephone interview. “The bank is going to be cognizant of the global picture.”