Canada’s dollar strengthened to a 13-month high versus its U.S. counterpart after the Federal Reserve announced a third round of stimulus measures to spur economic growth in the nation’s largest trading partner.
The currency gained against 13 its 16 most-traded counterparts as the Fed said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month, expanded its guidance on interest rates into 2015 and pledged to keep monetary policy accommodative even when the economy strengthens. The debt purchases raised concern that the money added to the U.S. economy will erode the value of the greenback.
“Number one, they are going to purchase more securities, and those purchases have been flagged as open ended for the time being -- markets are going to look at that as a positive for risk,” George Davis, chief technical analyst for fixed income and currency strategy in Toronto at Royal Bank of Canada, said in a telephone interview. “More risk means currencies like Canada’s, which is closely tied to commodities, will benefit.”
Canada’s currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, rose 0.8 percent to 96.85 cents per U.S. dollar at 5 p.m. in Toronto. It touched 96.65 cents, the strongest level since August 2011. One Canadian dollar buys $1.0325.
Government bonds rose. The benchmark 10-year yield fell three basis points, or 0.03 percentage point, to 1.88 percent. Two-year note yields dropped three basis points to 1.17 percent.
U.S. stocks rose, sending the Standard & Poor’s 500 Index above its highest close in five years. The S&P 500 gained 1.6 percent.
Commodity-linked currencies were bolstered as investors placed bullish bets on growth. The dollars of Australia and New Zealand, commodities exporters like Canada, both gained against the greenback. The Aussie appreciated 0.8 percent to $1.0547 and the kiwi, as New Zealand’s dollar is known, rose 1.2 percent to 83.10 U.S. cents.
Gold and oil, both Canadian exports, climbed. The metal rose to the highest level in more than six months as gold futures for December delivery rose 2.2 percent to settle at $1769.70 on the Comex in New York, the highest since Feb. 29. Crude futures advanced the most since May.
“The longer that the U.S. keeps their interest rates low,
“The longer that the U.S. keeps their interest rates low, especially since commodities are priced in U.S. dollars, the longer we’ll see a rally in commodities and commodity-based currencies,” Tim Gardiner, managing director of commodities at Toronto-Dominion Securities, said in a phone interview.