March 16 (Bloomberg) -- Canada’s dollar strengthened for the first time in six weeks against its U.S. peer on signs of economic growth as crude oil, the nation’s biggest export, rose to a three-week high amid increased risk appetite.
The currency gained against a majority of its most-traded peers after a report showed that inflation in the U.S., Canada’s largest trading partner, is contained, giving the Federal Reserve scope to maintain its monetary stimulus program before a policy meeting next week. Canadian retail sales grew in January after falling the month before, according to a Bloomberg News survey before the report’s March 21 release.
“Canadian negative fundamentals have driven Canadian dollar softness over the past couple of months, so it seemed like it was due for a pullback,” Greg T. Moore, a currency strategist at Toronto-Dominion Bank, said yesterday by phone. “It has the potential to extend further into the mid-to-low C$1.01 area -- it has support down there.” Support refers to an area on a chart where buy orders may be clustered.
The loonie, as Canada’s dollar is nicknamed for the image of the aquatic bird on the C$1 coin, appreciated 0.9 percent to C$1.0194 per U.S. dollar this week in Toronto. It touched C$1.0181 on Friday, the strongest level since Feb. 22. One Canadian dollar buys 98.10 U.S. cents.
Canada’s benchmark 10-year government bond increased, with yields falling four basis points, or 0.04 percentage point, to 1.90 percent. The 2.75 percent security that matures in June 2022 gained 31 cents to C$107.20.
The Bank of Canada auctioned C$1.5 billion ($1.46 billion) of 30-year bonds on March 13, drawing an average yield of 2.624 percent, up from 2.289 percent at the last auction on Nov. 28. The 3.5 percent securities mature in December 2045.
Futures traders increased their bets that the Canadian dollar will decline against the U.S. dollar to the highest level since March 2007, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the Canadian dollar compared with those on a gain -- so-called net shorts -- was 53,397 on March 12, compared with net shorts of 46,663 a week earlier.
At the same time, traders were the least bearish on the loonie in six weeks as so-called risk-reversals show options traders are paying the least for protection against loonie weakness since Feb 2. The three-month 25-delta risk reversal rate touched 0.98 percentage point yesterday from as much as 1.49 percentage points on Feb. 26, its highest since Sept. 7.
Futures on crude oil advanced for a second week, increasing 1.5 percent to $93.45 a barrel in New York, after touching $93.84 per barrel, the strongest since Feb. 25.
Western Canada Select, the benchmark for oil-sands bitumen, traded at a discount of $20 on Friday to U.S. West Texas Intermediate price after hitting $18.50 on March 11, the lowest since Oct. 17. The discount has fallen from $42.50 since Dec. 15.
“The Western Canada Select-West Texas Intermediate spread should be on every Canadian dollar traders screen, because it’s the most important factor in trade right now,” Adam Button, currency analyst for Forexlive.com in Montreal, said by phone on March 14.
Lumber futures for May delivery rose $10 on March 14, the most allowed by the Chicago Mercantile Exchange. The Standard & Poor’s GSCI Index of 24 raw materials rose for the second week after hitting the highest level since Feb. 27. Raw materials, including oil, account for almost half of all of Canada’s exports.
“The strength in the U.S. numbers is helpful for the Canadian currency,” Nick Bennenbroek, the head currency strategist at Wells Fargo & Co., said in a phone interview on March 14. “It comes in the context of fairly solid employment reports from the U.S. and Canada last week.”
The loonie has strengthened 1 percent since March 8, when data showed employment gains in Canada and the U.S. exceeded forecasts, with both nations’ unemployment rates at four-year lows.
This week, first-time jobless claims in the U.S. fell to the fewest since mid-January as retail sales in the world’s largest economy rose in February by the most in five months.
Canada’s dollar has lost 0.5 percent this year against nine developed-nation peers tracked by the Bloomberg Correlation Weighted Indexes. The greenback has gained 2.5 percent and the Japanese yen has lost 7.6 percent, the biggest decline in the index.
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