Canada’s dollar appreciated through parity with its U.S. counterpart on an improved outlook for the nation’s exports after America’s Labor Department reported employers hired more workers than economists predicted.
The currency gained for a fourth week as stocks and crude oil, the nation’s largest export, rallied. Futures traders reversed their bets that the Canadian dollar will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.
“It’s nice to see the Canadian dollar break through parity, but you have to be a little bit disappointed with the follow through,” said Adam Button, a currency analyst at forexlive.com in Montreal. “There seems to be plenty of eager corporate sellers of the Canadian dollar around parity.”
Canada’s currency, nicknamed the loonie, appreciated 0.6 percent to C$1.0013 per U.S. dollar at 5 p.m. in Toronto, after advancing to 99.80 cents, the strongest since May 11. It’s up 0.2 percent this week. One Canadian dollar buys 99.87 cents.
Investors should buy higher-yielding currencies such as the Canadian and Australian dollars against the euro, according to Greg Anderson at Citigroup Inc. Canada’s dollar reached a record high against the euro yesterday, trading as strong as C$1.2197, before dropping 1 percent today.
“You should still short euro across the crosses and that’s been a good trade all year,” said Anderson, head of G-10 currency strategy in New York. “The euro has, in fits and starts, impressively underperformed Aussie, the Canadian dollar and Sweden. That is still the trade.” A short position is a bet that an asset will decline in value.
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 12,449 on July 31, compared with net shorts of 2,432 a week earlier, according to CFTC data.
The loonie extended gains today after the report showed U.S. payrolls increased 163,000, more than the median estimate of 89 economists surveyed by Bloomberg News, which called for a gain of 100,000. July’s gains followed a revised 64,000 rise in June that was less than initially reported, the report said. Unemployment rose to 8.3 percent.
Gains in higher-yielding assets may be short-lived if the strength of the payrolls data diminishes odds of further measures for quantitative easing from the Federal Reserve, said Shaun Osborne at Toronto-Dominion Bank.
“What’s good for the U.S. economy is generally good for Canada,” Osborne, chief currency strategist at Toronto-Dominion’s TD Securities unit, said in a telephone interview. “However, it’s really all about the potential for central bank action at the moment and this is a pretty decent number so it reduces the pressure for quickish action from the Fed.”
Canada ships about three quarters of its exports to the U.S., and is the biggest supplier of crude oil to the world’s largest economy.
Canadian 10-year bonds are yielding the most relative to their U.S. counterparts since last year on speculation Bank of Canada Governor Mark Carney will hold to a tightening bias while his southern counterpart moves to stimulate the world’s largest economy.
Canada’s benchmark 10-year bonds yielded 1.77 percent today, 21 basis points more than similar-maturity U.S. securities, almost the widest spread since October. Canada 10-year bonds yielded 12 basis points less than Treasuries in March.
Canadian government bonds are trailing global peers after posting better returns during the past two years as investors turn to deeper markets, such as the U.S., or higher-yielders including South Africa. Canada’s government debt returned 0.3 percent last month, the third-least among 25 countries tracked in the Bank of America Merrill Lynch Global Sovereigns Broad Market Plus Index.
“We’re one of the few central banks talking about taking stimulus away, while everyone else is stimulating,” Hosen Marjaee, a money manager in Toronto at Manulife Asset Management Ltd., which oversees about C$17 billion ($16.9 billion) in fixed-income assets, said in an interview yesterday. “There’s rumors the Federal Reserve is preparing to come in and do something else,” he said, referring to purchasing assets to lower borrowing costs. “Those two reasons have made the U.S. market outperform ours by quite a bit.”
The Standard & Poor’s 500 Index rose 1.9 percent. Crude-oil futures rose 4.9 percent to $91.36 a barrel in New York.
Canada’s currency dropped against 11 of its 16 major counterparts today.
“Even though the Canadian dollar has been very closely correlated to U.S. stocks, it’s not one of the best performers today,” said Forexlive’s Button, who predicted the loonie will hover around parity for the rest of the month. “This isn’t the kind of performance you might expect.”
Canada’s dollar has increased 2 percent this year against nine major counterparts in Bloomberg Correlation Weighted Indexes, while the U.S. dollar is down 0.2 percent.