Canada’s dollar strengthened to a two-month high versus its U.S. counterpart as speculation the Federal Reserve and Chinese government will take steps to boost economic growth spurred demand for higher-risk assets.
The currency headed for a second straight weekly gain on bets the Bank of Canada will be the first among Group of Seven peers to raise interest rates. Crude oil, Canada’s biggest export, climbed above $91 a barrel and stocks gained. Canadian wholesale sales rose more than forecast in May.
“What’s keeping dollar-Canada at these lows is a bid to commodities,” Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, said in a telephone interview. “We have a central banker whose biased toward hawkish behavior, and ultimately that’s going to put some tailwind behind the currency as well.”
Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, appreciated 0.3 percent to C$1.0074 per U.S. dollar at 5 p.m. in Toronto. It touched C$1.0066, the strongest since May 16. One Canadian dollar buys 99.27 U.S. cents.
Government bonds fell, pushing yields on benchmark 10-year debt up four basis points, or 0.04 percentage point, to 1.65 percent. The price of the 2.75 percent securities maturing in June 2022 declined 35 cents to C$109.93.
The Bank of Canada plans to sell C$2.6 billion ($2.6 billion) of 10-year debt on July 25. The securities will mature June 1, 2023.
The loonie has breached its 50-, 100- and 200-day moving averages as it approaches parity with the U.S. dollar. The last time the two traded on a one-to-one basis was May 15, when the loonie touched 99.90 cents to the greenback. Canada’s dollar has closed in 2012 as strong as 98.04 on April 27 and as weak as C$1.0410 on June 1.
Australia’s dollar gained 0.6 percent today to $1.0427 and rose 0.3 percent to C$1.0504.
“We’re expecting the Canadian dollar to keep grinding higher against the U.S. dollar, but lagging the Australian dollar badly,” said Blake Jespersen, managing director of institutional foreign-exchange sales in Toronto at Bank of Montreal, in an e-mail. “We’re mildly bearish from here on the Canadian dollar. The growth story isn’t improving, and I’m skeptical that the Fed engages in QE3, which the market is pricing in, hence this rally.”
The U.S. central bank bought $2.3 trillion of assets from 2008 to 2011 in two rounds of a tactic called quantitative easing to stimulate the economy.
Crude oil futures rallied 2.7 percent to $92.32 a barrel in New York. The Thomson Reuters/Jefferies CRB Index of raw materials climbed 2 percent. Raw materials including oil account for about half of Canada’s export revenue. The Standard & Poor’s 500 Index gained 0.3 percent.
Canadian wholesale sales rose more than economists forecast in May, led by purchases of computers and communications equipment. Sales increased 0.9 percent to C$49.8 billion ($49.4 billion), Statistics Canada said from Ottawa. Economists predicted wholesales would rise 0.2 percent, based on the median estimate in a Bloomberg survey with 16 responses.
The report suggests Canada’s economic growth will “bump along” close to its current trend, rather than accelerating as the central bank expects, said Mazen Issa, Canada macro strategist at the securities unit of Toronto-Dominion Bank in Toronto.
Statistics Canada releases data on the country’s consumer price index for June tomorrow. Economists surveyed by Bloomberg forecast a 1.7 percent rise in consumer prices over the previous year and a 2.3 percent gain in the core. The agency will release retail sales data for May on July 24, which economists expect to have increased 0.3 percent over the previous month, according to a Bloomberg survey.
“Governor Carney has downsized growth expectations and a natural progression of that would be to downsize the inflationary expectations as well,” Spitz said. “If we see a major outlier from both a beat, or a miss perspective, then I think we’ll ultimately see a move lower in the Canadian dollar.”
German Finance Minister Wolfgang Schaeuble said Spain would remain liable for as much as 100 billion euros ($123 billion) of aid. German lawmakers approved their government’s participation in the euro-area bailout of Spanish banks after the assurance.
Spain’s 10-year government bond yield climbed above 7 percent following a debt sale today. That was the level that spurred Greece, Ireland and Portugal to seek bailouts.
“You’re still seeing demand for Aussie and the Canadian dollar,” Stephen Gallo, senior foreign-exchange strategist at Credit Agricole SA in London, said in a telephone interview. “The markets are playing the debasement trade. They’re buying the currencies that have positive real interest rates and selling the heck out of the ones with negative real interest rates. It’s ongoing slippage away from the euro.”