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Canadian Dollar Reaches 3-Week High on Syria, Economic Growth

Sept. 10 (Bloomberg) -- The Canadian dollar gained for a third day, touching a three-week high, as a Russian bid to get Syria to surrender its chemical weapons that may avert a U.S. attack boosted demand for riskier assets.

The currency advanced versus the majority of its 16 most-traded peers even after Canada’s federal housing agency said housing starts in August posted their biggest drop in seven months. The currency gained the previous two days against its U.S. counterpart as data on building permits and employment growth exceeded analysts’ forecasts. Yields on government 10-year bonds rose to a two-year high.

“There seems to be a slight shift towards a potential diplomatic solution in Syria, which has eased the risk-aversion trades,” said Matthew Perrier, director of foreign exchange at Bank of Montreal, by phone from Toronto. “We continue to benefit from the stronger Canadian employment data on Friday.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, rose 0.2 percent to C$1.0349 per U.S. dollar at 5 p.m. in Toronto. One loonie buys 96.63 U.S. cents.

The currency earlier gained to C$1.0331, the strongest intraday level since Aug. 19 and past its 100-day moving average at C$1.0333. The loonie breached its 50-day moving average of C$1.0406 yesterday. Breaking a moving average is a sign to some traders a move has momentum.

Bonds, Oil

Canada’s benchmark 10-year government bond fell, with yields rising seven basis points, or 0.07 percentage point, to 2.82 percent, the highest since July 2011. The 1.5 percent security maturing in June 2023 lost 56 cents to C$88.89.

Futures of crude oil, Canada’s largest export, fell 2.1 percent to $107.23 per barrel in New York and the Standard & Poor’s 500 Index of U.S. stocks gained 0.7 percent.

Housing starts were 180,291 at a seasonally adjusted annual pace last month, reported the Ottawa-based Canada Mortgage & Housing Corp., down from 193,000 the previous month. The monthly average this year is 184,701. Economists forecast a a reading of 190,000, according to the median of 21 responses to a Bloomberg News survey.

A report yesterday showed Canadian building permits rose to a record in July. The value of municipal permits climbed 20.7 percent to C$7.99 billion ($7.70 billion), Statistics Canada said, with the gain exceeding all 10 forecasts in a Bloomberg survey. Job growth in August was three times faster than the average of analysts’ estimates, a report showed Sept. 6.

‘Perfect Storm’

“It’s a perfect storm for Canadian dollar strength,” John Curran, a senior vice president at CanadianForex Ltd., an online foreign exchange dealer, said by phone from Toronto. “The main thing is the hangover from data on Friday and Monday, and the possibility of a Russian-backed solution for Syria has further strengthened the Canadian dollar.”

The U.S. Senate backed away from an immediate vote authorizing a military strike against Syria as President Barack Obama, who will speak from the White House at 9 p.m., sought time for international talks on eliminating that country’s chemical weapons.

France will ask the UN Security Council to approve a resolution demanding that Syria place its chemical arms under international control, Foreign Minister Laurent Fabius said today in Paris. The draft will call for Bashar al-Assad to be punished for an Aug. 21 chemical-weapons attack that the U.S. and allies say was carried out by his forces, Fabius said.

‘Avoid War’

“The Canadian dollar is trading in step with global sentiment on Syria,” Adam Button, a currency analyst at forexlive.com, said by phone from Montreal. “There’s a credible path to avoid war in Syria at the moment and that’s great news for the Canadian dollar.”

The cost to insure the Canadian dollar against declines versus its U.S. peer rose from its lowest point in more than five weeks. The three-month so-called 25-delta risk-reversal rate rose to 1.31 percent, after earlier dropping to 1.27 percent. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

The loonie has dropped 1 percent in the past three months versus nine developed nation currencies tracked by the Bloomberg Correlation-Weighted Index. The New Zealand dollar is the biggest winner in that period with a 3.5 percent rise while the Norwegian krone posted the biggest drop, at 2 percent.

To contact the reporter on this story: Ari Altstedter in Toronto at aaltstedter@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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