Canada Dollar Gains After Largest Drop Since 2011 as Gold Rises

The Canadian dollar rose against its U.S. counterpart after yesterday’s largest drop in more than a year as gold pared losses following a 14 percent two-day plunge that damped demand for commodity-linked currencies.

The loonie, as the currency is nicknamed, fell versus its commodity peers, the Australian and New Zealand dollars, as gold for immediate delivery gained 2.6 percent. Slower-than-forecast economic data in Canada, China and in the U.S., the nation’s largest trading partner, is projected to lead the Bank of Canada to revise down growth forecasts as it leaves its 1 percent interest rate in place at its policy meeting tomorrow. Canadian factory sales increased more than forecast in February.

“I think retracement is really the big word of the day, for not just gold, but all commodities and the commodity currencies, including the Canadian dollar,” said Greg T. Moore, a currency strategist at Toronto-Dominion Bank, by phone from Toronto. “The risks seem to be for the downside for the Canadian dollar. The Bank of Canada is obviously going to have to recognize the disappointing data that we’ve had through the first quarter.”

The loonie rose 0.5 percent to C$1.0207 per U.S. dollar at 5:05 p.m. in Toronto. Yesterday it touched C$1.0259, a 1.2 percent drop and the biggest since Dec. 8, 2011. One loonie buys 97.93 U.S. cents.

Gold Weights

Although the world’s two biggest gold producers by market value are Canadian, gold miners account for only 6.1 percent of the Standard & Poor’s Toronto Stock Exchange Index. Goldcorp Inc. is the biggest by market value and Barrick Gold Corp. is the second biggest.

Futures on crude oil, the country’s biggest export, was little changed after touching $86.06, the lowest point since November. The Standard & Poor’s 500 Index of U.S. stocks gained 1.4 percent.

“When you look through what Canada exports and who it exports to, you can come to the conclusion that maybe the disappointment in China probably wasn’t as significant as the market thought it was yesterday,” said Jane Foley, senior currency strategist at Rabobank International in London. “Maybe there is a little bit of a recovery from the selloff we had earlier in the week.”

Canada’s benchmark 10-year government bonds fell, with yields rising three basis points or 0.03 percentage point to 1.74 percent. The 1.5 percent security maturing in June 2023 lost 25 cents to C$97.83.

The Bank of Canada will announce additional details on April 18 about an April 24 auction of securities maturing in 2015.

Economic Data

A faster-than-forecast pickup in factory sales in February follows weaker-than-projected gross domestic product data in China, an expected drop in retail sales in the U.S., and the biggest monthly job loss in Canada since 2009.

Canadian factory sales advanced in February at the fastest pace since July 2011, with sales rising 2.6 percent to C$49.6 billion ($48.5 billion), following a revised January decline of 0.6 percent, Statistics Canada said today in Ottawa. The increase exceeded all 18 economist forecasts in a Bloomberg survey with a median estimate of a 0.6 percent gain.

“The market is looking for more of a dovish stance from the Bank of Canada, potentially even going to a neutral stance and taking any sort of hiking rhetoric out of the statement,” said Darcy Browne managing director of currencies at Canadian Imperial Bank of Commerce’s CIBC World Markets unit, by phone from Toronto. “When the Canadian dollar strengthens people will sell that and if the U.S. dollar weakens people are looking to buy that.”

Central-bank officials have held the benchmark interest rate at 1 percent since September 2010 to support the economy.

Capital Flows

Canada registered a net outflow of securities in February as foreigners sold a net C$6.31 billion of Canadian securities in February, led by the biggest sale of stocks since October 2007, government figures showed.

The cost of living in the U.S. declined 0.2 percent in March for the first time in four months after a 0.7 percent jump in February, the Labor Department said today in Washington. Separate data showed a surprise 7 percent jump in U.S. new-home construction.

The Canadian dollar has fallen 1.4 percent this year against nine other developed nation currencies tracked by the Bloomberg Correlation Weighted Index, trailing the Australian dollar’s 1.7 percent gain and the New Zealand dollar’s 4.7 percent gain. The U.S. dollar rose 1.8 percent.

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