The Canadian dollar rose against all of its 16 most-traded peers, drawing strength from a government report pointing to a revival of economic growth.
The loonie, as the currency is nicknamed, erased a loss against its U.S. counterpart after wholesale sales rose at the fastest pace in more than two years in May, reaching a record on sales of fertilizer and food. The currency weakened yesterday after Bank of Canada Governor Stephen Poloz said the nation’s economy has significant slack and inflation remains muted, pushing back the potential for an interest-rate increase. Federal Reserve Chairman Ben S. Bernanke said curtailing the U.S. central bank’s asset purchases remains linked to indications of economic improvement.
“Wholesale sales suggest there could be a bit of an upside to the rather soft expectations people had for growth in the second quarter,” Greg T. Moore, a currency strategist at Toronto-Dominion Bank, said in a telephone interview.
The loonie appreciated 0.3 percent to C$1.0378 per U.S. dollar at 5 p.m. in Toronto. It gained 1.1 percent against the yen and 1.3 percent versus the South African rand. One loonie buys 96.36 U.S. cents.
Implied volatility for three-month options on the Canadian dollar versus its U.S. counterpart slowed to 7.07 percent, reaching the lowest on a closing basis since May 14. Implied volatility, used to set option prices and gauge the expected pace of currency swings, reached a one-year high of 8.87 percent on June 24.
Government bonds snapped a rally. Canada’s 10-year benchmark government bonds fell, pushing yields up after they declined yesterday to the lowest level on a closing basis since June 20. The 1.5 percent security maturing in June 2023 dropped 24 cents today to C$92.17, pushing the yield up three basis points, or 0.03 percentage point, to 2.40 percent.
Canada will auction C$3.3 billion ($3.2 billion) of notes due November 2015 on July 24, the Bank of Canada said.
In his first interest-rate decision as Bank of Canada governor, Poloz inserted a line in his monetary policy report saying near-record low interest rates are appropriate “as long as” there is significant economic slack in the economy and low inflation.
Wholesale sales rose 2.3 percent to C$50.3 billion ($48.3 billion), Statistics Canada said in Ottawa, compared with the median estimate for a 0.3 percent gain in a Bloomberg survey with 15 responses.
The Bank of Canada raised its economic growth forecast for this year yesterday to 1.8 percent from an April prediction of 1.5 percent, while lowering the 2014 projection to 2.7 percent from 2.8 percent. Both figures exceed Bloomberg consensus forecasts of 1.7 percent and 2.4 percent.
The consumer price index rose 1.2 percent in June from a year earlier, compared with 0.7 percent in May, data scheduled to be released 8:30 a.m. in Ottawa is forecast to show.
“Tomorrow’s Canadian inflation data should not be much of an attention-getter, so look for us to move generally in sync with overall moves in the U.S. dollar,” John Curran, a senior vice president CanadianForex Ltd., an online foreign-exchange dealer, said in a note to clients.
Bernanke yesterday stressed the asset purchases the Fed has used to lower interest rates “are by no means on a preset course” and could be reduced or expanded as the economy warrants, in remarks to Congress.
“The overwhelming view is that the jury is still out on” when the Federal Reserve will begin withdrawing stimulus, Stephen Gallo, European head of currency strategy at Bank of Montreal in London, said in an e-mail. “The market is toying with the likely timing.”
The loonie gained 1.2 percent in the past three months against nine developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index. The euro led gainers with a 3 percent advance followed by the U.S. dollar’s 2.5 percent increase.