The Canadian currency posted its biggest monthly gain since January against the U.S. dollar after the nation’s economy expanded more than forecast in the second quarter and demand for higher-yielding assets climbed.
Canada’s dollar was supported as crude oil posted its largest monthly advance since October and Federal Reserve Chairman Ben S. Bernanke reiterated that the U.S. central bank is committed to additional monetary stimulus if needed for Canada’s biggest trading partner. The Bank of Canada is forecast to keep its benchmark lending rate unchanged at 1 percent when policy makers meet Sept. 5.
“The Canadian GDP number was a surprise,” said Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp. “Bernanke has shown his hand and didn’t close the door on further easing.”
The so-called loonie rose 1.7 percent to 98.63 cents per U.S. dollar in August, erasing a weekly loss yesterday after the nation’s gross domestic product topped analyst estimates. It touched 98.43 cents on Aug. 28, equaling the highest level since May 3. One Canadian dollar buys $1.0139. The dollar rose 1.87 percent against its U.S. counterpart in January.
Canada’s currency gained 3.6 percent this year against the greenback. It has strengthened against the majority of its most-traded counterparts.
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, known as net longs, rose to 60,936 contracts in the five days ended on Aug. 28, up from net longs of 50,867 a week earlier.
Yields on Canadian benchmarks rose the most last month since March. The 10-year bond yield increased 10 basis points, or 0.10 percentage point, to 1.77 percent. The 2.75 percent security fell 98 cents to C$108.71. The two-year note yield rose six basis points to 1.14 percent.
The Bank of Canada auctioned C$2.9 billion of three-year bonds on Aug. 29 at a 1.278 percent average yield with a bid-to-cover ratio of 2.73. The previous auction of similar-maturity bonds on June 13 drew an average yield of 1.153 percent and a coverage ratio of 2.47 times.
Oil, Canada’s largest export, posted its biggest monthly advance in 10 months as Hurricane Isaac shut down oil rigs on the Louisiana coast and amid a fire at Venezuela’s biggest refinery. Crude oil futures advanced 9.6 percent in August to $96.46 a barrel in New York.
Gross domestic product grew, amid growth in business investment and stockpiles, at a 1.8 percent annualized pace in the three-month period, matching the revised January-March figure. The median forecast was for the rate to fall to 1.6 percent.
Exports grew at a 0.8 percent pace, the slowest in a year, even as imports accelerated to the fastest growth rate since the second quarter of 2011. Net exports have acted as a drag on growth for two consecutive quarters.
The report trumped negative sentiment from the Aug. 30 Statistics Canada release that the nation reported its widest current-account deficit in almost two years. Central Bank Governor Mark Carney reiterated Aug. 22 that an interest-rate increase “may become appropriate” as Canada completes a recovery from a recession that ended in mid-2009 with the lowest borrowing costs of any country not directly affected by the financial crisis.
“The Bank of Canada wants to continue to remain optimistic and hawkish, and a lot of indicators are coming in showing that disappointment is more likely,” said David Watt, chief economist at HSBC Bank Canada in Toronto. “People are uncertain about how things are going to play out going forward.”
The loonie is the second-best performer, behind Japan’s yen, in the past six months versus the currencies of nine developed-nation counterparts, according to the Bloomberg Correlation-Weighted Indexes. The currency’s 2.9 percent advance compares to a 6.5 percent surge by the yen and a 3.9 percent decline in the euro.