Canadian Dollar Gains as IMF Considers Reserve Status

The Canadian dollar gained the most in a month against its U.S. counterpart after the International Monetary Fund said it’s considering classifying the so-called loonie and Australia’s dollar as reserve currencies.

Canada’s dollar, nicknamed the loonie for the image of the waterfowl on the C$1 coin, gained earlier as global stocks and commodities advanced amid optimism the U.S. Congress would avert the so-called fiscal cliff. The currency extended gains after details of the Nov. 14 IMF report were disclosed.

“We saw the Canadian dollar spike and I would say that the IMF news is a pretty good catalyst,” Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, said in a phone interview. “More and more central banks are adopting a diversified approach, especially with what’s gone on in Europe and the United States. It’s another positive story on holding Canada and commodity currencies.”

The Canadian currency advanced 0.5 percent to 99.63 cents per U.S. dollar at 5 p.m. in Toronto after gaining as much as 0.6 percent, the most since Oct. 17. The currency traded below parity with the greenback last week and reached its lowest value since August. One Canadian dollar buys $1.0037.

The Canadian and Australian dollars “are to be considered for inclusion” separately in the IMF’s “Currency Composition of Official Foreign-Exchange Reserves” data, the Washington-based lender said. They’ve previously been included in an “other currencies” category in the COFER reports.

International Demand

“This would shed greater light on the extent to which reserve managers are investing in the Canadian dollar and the Aussie dollar,” Emanuella Enenajor, an economist at CIBC World Markets in Toronto, said in a phone interview. “It’s a bullish signal because the IMF would only do this for a currency that is gaining in its clout potentially in reserve portfolios.”

Russia has been adding Canadian dollars to foreign-exchange reserves with Georgiy Mamedov, Russia’s ambassador to Canada, calling it a haven currency in Toronto last month. The country increased its holdings of the Canadian dollar in its international reserves to 1.6 percent from 0.8 percent as of January.

“There’s more and more interest in getting a better breakdown of where reserve managers are allocating their capital,” Enenajor said. “The loonie’s strength has been almost entirely driven by these capital inflows.”

Bonds, Stocks

Canadian bonds declined, pushing the yield on the 10-year benchmark note up four basis points, or 0.04 percentage point, to 1.74 percent. The 2.75 percent security due June 2022 lost 37 cents to C$108.90.

The Standard & Poor’s 500 Index added 2 percent and the S&P GSCI Index of 24 raw materials was up 2.1 percent. Oil, Canada’s largest export, increased 3 percent to $89.28 per barrel in New York.

U.S. House Speaker John Boehner and White House Press Secretary Jay Carney described a Nov. 16 meeting on the so-called fiscal cliff, $607 billion in automatic tax increases and spending cuts scheduled to take effect at the beginning of 2013, as “constructive.” European finance ministers are due to meet in Brussels tomorrow as they aim to craft a plan for Greece’s next aid payout.

“We can expect equity sentiment and oil prices to provide impetus for the Canadian dollar,” Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London, said in a note to clients. “The market may have reduced fiscal-cliff concerns in the wake of the constructive talks on Capitol Hill at the end last week.”

The loonie has climbed 1.4 percent this year against nine developed-nation counterparts tracked by Bloomberg Correlation - Weighted Indexes. The U.S. dollar has dropped 1.3 percent, and the yen leads decliners with a 7.3 percent drop.

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