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Canadian Dollar Strengthens Third Day as RBA Lowers Target Rate

Canada’s dollar gained against its U.S. counterpart for a third day as the Reserve Bank of Australia cut its benchmark interest rate to a record 2.75 percent, intensifying the search for higher-yielding assets.

The loonie, as the currency is nicknamed for the image of the waterfowl on the C$1 coin, gained against the majority of its most-traded peers as German factory orders unexpectedly increased in March, suggesting the region’s largest economy is starting to grow again and spurring risk appetite.

“The catalyst was Aussie-Canada selling,” Jack Spitz, managing director of foreign exchange in Toronto at National Bank of Canada, said of the loonie’s rally. “It was on the back of the RBA announcement, which made the Aussie dollar weaker, but really the motivation for the move this morning was likely on the back of better-than-expected German factory orders.”

Canada’s dollar gained 0.3 percent to C$1.0042 per U.S. dollar at 5 p.m. in Toronto. One Canadian dollar buys 99.58 U.S. cents.

Canadian government bonds fell, with the yield rising two basis points, or 0.02 percentage point, to 1.82 percent. The 1.5 percent note maturing in June 2023 dropped 21 cents to C$97.07.

Oil, the country’s biggest export, decreased 0.7 percent to $95.52 a barrel in New York. The Standard & Poor’s 500 rose 0.5 percent to 1,625.96.

‘Broader Themes’

The loonie rallied as much as 1.1 percent to C$1.0205 per Australia’s dollar, the biggest jump since July and the strongest level since October.

“Data is limited today, leaving CAD to trade off of broader themes,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia, wrote in a client note.

The cost to insure against losses in the Canadian dollar versus its U.S. counterpart fell one day after reaching their highest point in more than a week.

The three-month so-called 25-delta risk reversal rate declined to 1.1025 percent from 1.1275 percent yesterday, its highest point since April 25. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

The loonie is approaching a technical measure that suggests it will soon fall in value. The 14-day relative strength index against the U.S. dollar was 65.7 percent, at almost the 70 percent level that signals it will drop.

Hedge funds and other large speculators last week decreased their bets the Canadian dollar will decline against the greenback, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers on a decline in the Canadian dollar compared with those on a gain -- so-called net shorts -- was 64,848 on April 30, compared with net shorts of 71,679 a week earlier.

Canada’s currency has gained 1.6 percent in the last month against nine developed nation currencies tracked by the Bloomberg Correlation Weighted Index. The Australian dollar has fallen 2.2 percent while the greenback has gained 0.2 percent.

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