Canadian Dollar Gains This Week Most Since January as Oil Rises

The Canadian dollar posted its largest five-day gain in almost four months versus its U.S. counterpart as crude oil, the nation’s largest export, rallied the most since June and other commodities rose.

The currency strengthened for a second day even after a report showed first-quarter growth was less than forecast in the U.S., the nation’s largest trading partner. Oil has increased about 5 percent this week to $92.79 a barrel.

“You’ve seen a rebound in gold, you’ve seen a rebound in crude and commodities and I think that’s helped stem the tide to a weaker Canada for the time being,” said Matthew Perrier, director of foreign-exchange trading at Bank of Montreal, by phone from Toronto. “If you look at the early part of the week you had quite a few attempts to take Canada weaker, through the upper end of the range and failed, and yesterday I think we just saw a little bit of short term capitulation.”

The loonie, as the Canadian dollar is known for the image of the waterfowl on the C$1 coin, rose 0.3 percent to C$1.0167 per U.S. dollar at 5:00 p.m. in Toronto. One loonie buys 98.36 U.S. cents. The currency has gained as much as 1 percent this week, the biggest increase since the five days ended Jan. 4.

Canada’s benchmark 10-year government bonds rose, with yields falling three basis points, or 0.03 percentage point, to 1.71 percent. The 1.5 percent security maturing in June 2023 rose 34 cents to C$98.13.

Risk Reversals

Futures of crude oil fell 0.8 percent today and the Standard & Poor’s/TSX Composite Index dropped 109.31 points, or 0.9 percent, to 12,220.20. The benchmark Canadian equity gauge has gained 1.3 percent this week, paring its loss for the year to 1.7 percent.

The cost to insure against the Canadian dollar falling versus its U.S. counterpart fall to their lowest point in more than a week. The three-month so-called 25-delta risk reversal rate was 1.028 percent, the lowest point since April 15. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

Implied volatility for three-month options on the Canadian dollar versus its U.S. counterpart reached 5.91 percent, the lowest since February. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings.

U.S. gross domestic product rose at a 2.5 percent annual rate, lower than forecast, after a 0.4 percent fourth-quarter advance, Commerce Department figures showed. The median estimate of 86 economists surveyed by Bloomberg called for a 3 percent gain. Consumer spending, the biggest part of the economy, climbed by the most since the fourth quarter of 2010.

Futures Bets

Bets the Canadian dollar will fall versus its U.S. peer are close to the highest level since 2007, data from the Washington-based Commodity Futures Trading Commission show.

“The market has built up short Canadian positioning but that positioning may mean there’s a bias for the market to cover its shorts a little bit in the loonie and that’s maybe what we’ve seen,” said Jane Foley, senior currency strategist at Rabobank International, by phone from London. “At the same time the market perhaps feels too long dollars generally and I think that is supportive Canadian dollars versus the U.S.”

The difference in the number of wagers on a decline in the Canadian dollar compared with those on a gain -- so-called net shorts -- totaled 71,679 contracts as of April 23, data from the CFTC show. As recently as September, there was a net-long position of about 112,000 contracts.

Canadian assets were a haven for investors following the 2008 financial crisis because its banks were deemed the safest in the world by the World Economic Forum and the nation led its Group of Seven peers in curtailing budget deficits and recovering lost jobs.

The Canadian dollar has risen 1.3 percent in the last three months against nine other developed-nation currencies tracked by the Bloomberg Correlation Weighted Index. The U.S. dollar has risen 2.5 percent and the Australian dollar has gained 0.9 percent.

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