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Canadian Dollar Rises on Stronger Economic Outlook Versus U.S.

Sept. 11 (Bloomberg) -- Canada’s dollar rose for a fourth day, the longest stretch of gains since July, as traders re-evaluated bets the nation’s economy would trail the U.S.’s in light of recent data that’s shown stronger-than-forecast growth.

The currency touched an almost four-week high versus its U.S. peer as President Barack Obama postponed a decision on military strikes against Syria to pursue a diplomatic solution to that country’s alleged chemical-weapons use, boosting riskier assets. Canada’s dollar strengthened past its 100-day moving average after data last week showed the economy created triple the jobs analysts forecast in August while U.S. payroll growth was less than projected.

“It looks like the path of least resistance, at least for the loonie, is to the upside,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in a phone interview. “We had that blockbuster jobs report out of Canada last week, and that’s really been echoed in some of the other surveys we’ve seen across Canada. So, yeah, I think the fundamental picture has also shown signs of improvement.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, rose 0.3 percent to C$1.0319 per U.S. dollar at 5 p.m. in Toronto after touching C$1.0314, the strongest level since Aug. 16. One Canadian dollar buys 96.91 U.S. cents.

It breached the 100-day moving average at C$1.0333, a signal to some traders a move has momentum to continue.

Bonds, Oil

Canada’s benchmark 10-year government bond rose, with yields rising three basis points, or 0.03 percentage point, to 2.79 percent after touching 2.83 percent, the highest since July 2011. The 1.5 percent security maturing in June 2023 gained 27 cents to C$89.16

The Bank of Canada auctioned C$400 million ($387 million) of inflation linked notes maturing Dec. 2044 at an average accepted yield of 1.368 percent, the highest level since May 2010.

Futures on crude oil, Canada’s largest export, added 0.3 percent to $107.74 per barrel in New York and the Standard & Poor’s 500 Index of U.S. stocks rose 0.3 percent.

Bets by hedge funds and other large speculators that the Canadian dollar will decline against its U.S. peer reached the most since June 14 last week, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers on a decline in the loonie compared with those on a gain -- net shorts -- was 34,639 on Sept. 3, compared with net shorts of 24,959 a week earlier, data Sept 6 showed.

‘Squeezing’ Bears

“That bearish story was really well priced in,” said Sebastien Galy, a senior currency strategist at Societe Generale SA, by phone from New York. Positive developments in Syria and with Canada’s economy showed sentiment had grown too negative on the Canadian dollar, he said, and “now basically we’re squeezing these bears.”

Implied volatility for three-month options on Canada’s dollar versus its U.S. counterpart rose from its lowest in seven weeks, to 6.76 percent. Earlier it fell to 6.64 percent, the lowest since July 23. The average for this year is 6.8 percent. The measure is used to set option prices and gauge the expected pace of currency swings.

The loonie has dropped 0.6 percent this year against nine developed nation currencies tracked by the Bloomberg Correlation-Weighted Index. The Australian, Japanese and Norwegian currencies are the only other decliners this year, while the U.S. dollar has gained 3.8 percent.

“We’ve seen quite positive fundamentals coming out of Canada,” Eimear Daly, a currency-market analyst at Monex Europe Ltd., said by phone from London. “There was a lot of talk that temporary factors in the Canadian economy would see a meatier bottom-out, but that actually hasn’t come through in data, and it looks like for now there could be quite a rebound already.”

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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