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Canada Dollar Strengthens on Better-Than-Forecast Data

The Canadian currency gained against its U.S. counterpart as better-than-forecast economic data from both countries boosted the appeal of higher-yielding assets.

Canada’s dollar earlier touched the lowest level in almost two weeks on concern a budget impasse may plunge the U.S. back into recession. The so-called loonie erased losses as Canadian retail sales increased a fourth month, topping economist forecasts on gains in automobile and gasoline purchases, and gross domestic product in the U.S. beat projections. The Canadian dollar weakened yesterday after the International Monetary Fund said the Bank of Canada shouldn’t raise interest rates until the end of next year to help fuel growth.

“The strong retail sales number this morning combined with the better third reading of the U.S. GDP were both positive for the Canadian dollar,” Greg Moore, currency strategist at Toronto-Dominion Bank, said by telephone from Toronto.

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, rose 0.1 percent to 98.77 cents per dollar at 5 p.m. in Toronto. It touched 98.97, lowest level since Dec. 7. One Canadian dollar buys $1.0127.

Canada’s dollar has gained 0.7 percent this month, paring its quarterly loss to 0.4 percent.

Government bonds were little changed, with benchmark 10-year bond yields at 1.84 percent. The price of the 2.75 percent notes maturing in June 2022 declined 6 cents to C$107.87.

Economic Reports

The U.S. economy grew at a 3.1 percent annual rate in the third quarter, exceeding the highest projection in a Bloomberg survey and compared with a previously estimated 2.7 percent gain, according to Commerce Department figures released today in Washington. The U.S. is Canada’s largest trading partner.

A separate report showed sales of previously owned homes climbed 5.9 percent to a 5.04 million annual rate, the most since November 2009, according to the National Association of Realtors in Washington. The median forecast of 82 economists surveyed by Bloomberg projected a 4.9 million rate.

“It’s always nice to have your southern cousin, which is the predominance of your trade market, doing better,” said Noel Hebert, chief investment officer at Bethlehem, Pennsylvania-based Concannon Wealth Management, which oversees about $250 million.

Canadian retail sales rose 0.7 percent to C$39.4 billion ($39.9 billion) in October, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg News forecast a 0.2 percent increase, based on the median of 24 projections.

Fiscal Cliff

“Decent print in the headline in terms of nominal numbers,” David Tulk, chief macro strategist at Toronto-Dominion Bank’s TD Securities unit, said by phone from Toronto. “You’ll find attention focusing back on fiscal-cliff discussions in the U.S., and if those turn out to be less optimistic, I wouldn’t be surprised to see some of that strength in the dollar fade.”

House Republicans are planning a vote today on a deficit reduction plan that President Barack Obama has criticized for not seeking enough new revenue through tax increases and has promised to veto. The standoff comes as U.S. politicians seek a compromise on deficit reduction to avoid the so-called fiscal cliff of more than $600 billion in automatic tax increases and spending cuts set to start in January.

Canada’s currency has gained 0.2 percent this year versus nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The greenback has dropped 3.5 percent and the yen has been the biggest loser, tumbling 13 percent. Norway’s krone leads gainers, up 4.7 percent.

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