Canadian Dollar Advances on U.S. Factory Data, Growth Revision

The Canadian dollar advanced against most of its major peers as unexpected manufacturing gains for the U.S., Canada’s largest trading partner, spurred an advance in stocks and positive risk sentiment.

The loonie, as the currency is nicknamed, gained versus its U.S. counterpart after Statistics Canada released revised economic data showing faster growth than previously reported. Crude oil, Canada’s largest export, advanced for a third day, reversing earlier declines.

The U.S. manufacturing report “shows that factories are not continuing to contract in the U.S. and the demand for raw materials there is a positive for the Canadian economy and the loonie,” Adam Button, a currency analyst in Montreal at said in a phone interview. “When we see U.S. stocks move higher, the Canadian dollar is going to make gains.”

The loonie advanced 0.1 percent to 98.23 cents per U.S. dollar at 5 p.m. in Toronto, after gaining as much as 0.4 percent. One Canadian dollar buys $1.0178.

The Standard & Poor’s 500 Index added 0.3 percent, while crude oil futures gained 0.2 percent to $92.35 a barrel in New York, after falling as much as 1 percent in earlier trading.

Price Swings

Implied volatility for one-month options, the anticipated price swings for the dollar-Canada exchange rate, rose to 7 percent, the highest close since Aug. 30. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings.

Government bonds rose, with the yield on the 10-year government bond dropping one basis point, or 0.01 percentage point, to 1.71 percent. The 2.75 security maturing in June 2022 added gained 13 cents to C$109.21.

The Institute for Supply Management’s U.S. factory index rose to 51.5 in September from 49.6 a month earlier, the Tempe, Arizona-based group said today. Economists in a Bloomberg survey projected a reading of 49.7 for September, according to the median of 76 forecasts.

Canada’s manufacturers’ raw material costs rose more than forecast in August while the prices for their products declined, Statistics Canada said today. The raw-materials price index increased 3.4 percent in August and the gain topped all nine forecasts in a Bloomberg survey that had a median estimate of a 1.2 percent gain.

Economic Revision

GDP grew at a 1.9 percent annualized rate between April and June compared with the prior reading of 1.8 percent, Statistics Canada said today in Ottawa. Fourth quarter pace increased to 2.1 percent from 1.9 percent.

The loonie declined against the euro after a report showed a Chinese factory index was at 49.8 for September, the first time that it has been below 50 for two straight months since 2009, a statistics bureau report showed in Beijing today.

“The data out of China was weaker than expected,” Mazen Issa, Canada macro strategist at Toronto-Dominion Bank’s TD Securities, said in a phone interview.

Canada’s dollar has strengthened 1.8 percent this year against nine developed-nation counterparts tracked by Bloomberg Correlation-Weighted Currency Indexes. The greenback has dropped 2.5 percent.

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