Canadian Dollar Rises on Chinese Demand for Commodities

Canada’s dollar gained for the second straight week versus its U.S peer as traders speculated faster growth in China would translate into more demand for the nation’s commodity exports.

The currency pared gains yesterday after a report showed Canada’s trade deficit widened to the fourth-largest on record in November as shipments to Europe fell. China posted exports five times higher than economists forecast and reported inflation quickened as its economy grew faster than expected.

“It’s having a bit of a relief rally on the positive outlook for China and that’s kind of affecting it and should hopefully give it direction over the next quarter,” Eimear Daly, a currency analyst at Monex Europe Ltd., said by phone from London. “The positive outlook for China is positive” for the Canadian currency, she said.

The loonie, as the dollar is nicknamed for the image of the aquatic bird on the C$1 coin, rose 0.2 percent to 98.48 cents per U.S. dollar this week. One Canadian dollar buys $1.0154. The currency strengthened 2.9 percent last year.

Futures on crude oil, Canada’s biggest export, rose 0.6 percent this week to $93.73 per barrel in New York, and the Standard & Poor’s 500 Index rose 0.4 percent.

Benchmark 10-year Canadian government bonds were little changed, with yields ending the week at 1.94 percent. The price of the 2.75 percent note maturing in June 2022 fell 3 cents to C$106.93.

Future Positions

Hedge funds and other large speculators pared bets that the Canadian dollar will gain against the greenback, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers on an advance in the Canadian dollar compared with those on a drop, known as net longs, was 64,005 on Jan. 8, compared with net longs of 65,926 a week earlier.

China’s exports rose 14.1 percent in December from a year earlier, while imports increased 6 percent, leaving a trade surplus of $31.6 billion, the Chinese customs administration said Jan. 10.

In another sign of faster growth, China’s consumer price index rose 2.5 percent in December from a year earlier to the highest level in seven months, compared to a 2 percent gain in November.

“The strong trade numbers that we had out of China, that may be also part of the reason why risk currencies have done well in the second part of the week, and maybe a small positive for the Canadian dollar,” said Audrey Childe-Freeman, head foreign-exchange strategist at Bank of Montreal, by phone from London.

Commodity Currencies

The loonie’s move past Dec. 13’s high of 98.25 cents per U.S. dollar signals it may appreciate beyond 98 cents, according to a note from George Davis, chief technical analyst at RBC Capital Markets, a unit of Royal Bank of Canada.

The loonie’s gain against its U.S. counterpart trailed those of other commodity currencies, including the Australian dollar which saw a 0.6 percent increase.

“We’ve rallied a lot less, we’ve been a really low-beta mover this week,” Shane Enright, executive director at Canadian Imperial Bank of Commerce’s CIBC World Markets unit, said by phone from Toronto. “So Canada has been an under-performer for the last few days.” An asset with a high beta tends to rise and fall more than the overall market.

The loonie fell 0.6 percent over the past month versus nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The greenback has dropped 0.9 percent.

‘Mitigating Factor’

Canada recorded a C$1.96 billion ($1.99 billion) trade deficit in November, up from a revised C$552 million shortfall in October, Statistics Canada said yesterday in Ottawa. The median estimate in a Bloomberg survey of economists was for a C$600 million deficit.

“The trade deficit absolutely worked to pare some of those gains,” Jack Spitz, managing director of foreign exchange at National Bank of Canada, said in a telephone interview. “Taking the Canadian number in the context of it being a mitigating factor with respect to first-quarter growth, that could play into the weakness.”

The U.S., Canada’s biggest trade partner, posted its biggest trade deficit today since April. The gap unexpectedly widened 15.8 percent to $48.7 billion, Commerce Department figures showed. The median forecast in a Bloomberg survey of economists projected a narrowing to $41.3 billion. Demand for

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