March 7 (Bloomberg) -- The Canadian dollar strengthened from an almost eight-month low against its U.S. counterpart as the nation recorded the smallest merchandise trade deficit in almost a year in January on exports of crude oil and bitumen.
The currency extended gains as the number of Americans who filed for unemployment benefits lat week declined to a six-week low, showing further improvement in the labor market of Canada’s largest trade partner. The so-called loonie fell yesterday after the Bank of Canada left the benchmark interest rate unchanged and said the current level will “remain appropriate for a period of time.”
“This is a bit of better news for the Canadian dollar, after what the bank said yesterday,” David Watt, chief economist in Toronto at the Canadian unit of HSBC Holdings Plc, said by phone of the trade-deficit report. “Canada also exported recorded volume in terms of barrels per day to the U.S. in December, and there’s more production coming on line in the next few months.”
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, rose 0.3 percent to $1.0294 per U.S. dollar at 5 p.m. in Toronto. One Canadian dollar buys 97.14 U.S. cents. The loonie touched C$1.0337 per U.S. dollar yesterday, near its lowest since June.
Canada’s benchmark 10-year government bond fell for a fourth day, with yields rising four basis points, or 0.04 percentage point, to 1.88 percent. The 2.75 percent security maturing in June 2022 fell 32 cents to C$107.32 after falling to C$107.25, the lowest since Feb. 25.
The Bank of Canada will auction C$1.5 billion ($1.46 billion) of 30-year bonds on Feb. 13. The 3.5 percent securities will mature in December 2045.
Futures on crude oil, Canada’s largest export, advanced 1.1 percent to $91.43 a barrel in New York after rising as much as 1.4 percent. The Dow Jones Industrial Average of U.S. stocks rose 0.2 percent to a record high closing level of 14,329.
“We’ve almost priced in everything we can negative into Canadian dollar, so it’s about time for a rebound,” said Eimear Daly, a currency market analyst at Monex Europe Ltd. by phone from London. “It’s moving on a positive outlook for equities -- the performance of the Dow Jones has really astounded people.”
The loonie strengthened as Canada’s deficit of C$237 million ($230 million) followed a revised December shortfall of C$332 million, Statistics Canada said in Ottawa. Economists surveyed by Bloomberg forecast the deficit would be C$600 million, based on the median of 20 forecasts.
Another report showed Canadian building permits rose 1.7 percent to C$5.85 billion ($5.68 billion), following a revised 10.4 percent fall in December, the statistics agency said. Economists forecast a 5.3 percent gain.
“Right now, we’ll take any good news from the Canadian economy,” said HSBC’s Watt.
First-time jobless claims in the U.S. unexpectedly fell by 7,000 to 340,000 in the week ended March 2, the lowest since the period ended Jan. 19, according to data today from the Labor Department in Washington. The median forecast of 50 economists surveyed by Bloomberg called for an increase to 355,000. The four-week average dropped to a five-year low.
“There’s a limit to the extent of the Canadian dollar’s decoupling from the U.S. dollar,” Valentin Marinov, head of European Group of 10 currency strategy at Citigroup Inc. in London, said by phone. “Potential indications that the resilience of the U.S. economy is having a positive spillover effect on the Canadian economy could support the Canadian dollar.”
Bank of Canada Governor Mark Carney has warned in every policy decision since April that rates could rise, reiterating yesterday that his eventual next move will probably be an increase. That makes him the lone Group of Seven central banker who has indicated he might raise interest rates, while the U.S. Federal Reserve and Bank of England are buying bonds to hold down yields to boost growth with policy rates close to zero.
“The considerable monetary-policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required,” policy makers led by Carney said in a statement from Ottawa yesterday.
Canada’s unemployment rate increased 0.1 percentage point to 7.1 percent in February, a Bloomberg News survey of 21 economists said. Statistics Canada will release the unemployment report tomorrow.
The loonie has fallen 3.9 percent during the past six months among the 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The U.S. dollar has gained 1.6 percent, and the euro has surged 4.2 percent.
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