Canadian Dollar Rises to One-Week High as U.S. Has a Debt Plan

The Canadian dollar rose to the highest level in a week as U.S. Senate leaders reached a bipartisan deal to end a government shutdown and avoid default, fueling demand for riskier assets.

The currency gained against the majority of its 16 most-traded peers as Republicans from the House of Representatives and the Senate signaled they would let the bill pass without the provisions to defund President Barack Obama’s 2010 health care plan, which they had demanded when the standoff began four weeks ago. Crude oil, Canada’s largest export, rose and stocks gained.

“It’s good for the U.S. economy, it’s good for Canada so it should be good for the currency and the Canadian dollar does stand to benefit disproportionately with the U.S. coming back to business in terms of the government,” said David Tulk, chief macro strategist at Toronto-Dominion Bank’s TD Securities unit, by phone from Toronto. “The price of oil is stronger as well, so it’s that commodity story, it’s risk assets, it’s taking out one of the major sources of uncertainty.”

The loonie, as the Canadian dollar is known for the image of the waterfowl on the C$1 coin, gained 0.5 percent to C$1.0328 per U.S. dollar at 5:01 p.m. in Toronto, the strongest since Oct. 8. One loonie buys 96.82 U.S. cents.

Oil, Stocks

Futures on crude oil gained 1 percent to C$102.17 per barrel and the Standard & Poor’s 500 Index of U.S. stocks added 1.4 percent.

Rates on $120 billion of bills maturing tomorrow, the same day that Treasury Secretary Jacob J. Lew has said the U.S. will run out of measures being used to keep the government solvent, dropped 28 basis points, or 0.28 percentage point, to 0.035 percent, after rising as high as 0.36 percent yesterday.

Canada’s benchmark 10-year government bonds rose, with yields falling three basis points to 2.61 percent, after touching the highest point in almost four weeks earlier. The 1.5 percent security maturing in June 2023 rose 27 cents to C$90.60.

The Bank of Canada sold C$3.3 billion ($3.2 billion) of two-year debt at a yield of 1.280 percent. The 1.25 percent securities mature in February 2016.

The bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.8, the most for a two-year note since the Aug. 21 auction.

Economic Report

Canadian factory sales unexpectedly fell in August, with food and automobile production slowed following maintenance shutdowns.

Sales fell 0.2 percent to C$49.5 billion, Statistics Canada said today in Ottawa, while economists surveyed by Bloomberg forecast a 0.2 percent increase. Food sales fell 1.6 percent to C$7.06 billion and motor vehicles by 2.5 percent to C$4.45 billion.

Canadian Finance Minister Jim Flaherty’s criticism last week of the U.S Federal Reserve’s use of unconventional monetary policy to stimulate the economy could put him at odds with the Bank of Canada, which lists such policies as tools for when its key policy rate is as low as possible.

Options traders assign no probability for the central bank to raise its benchmark interest rate at its Oct. 23 policy meeting, pricing in 0.4 basis points looser policy, according to Bloomberg calculations based on overnight index swaps.

The government is forecast to turn its focus to consumer issues in a mid-term update today, the so-called Speech from the Throne.

Monthly Performance

The loonie has fallen 0.9 percent in the past month against nine developed nation currencies tracked by the Bloomberg Correlation-Weighted Index. The Australian dollar has gained 1.9 percent and the U.S. dollar has fallen 0.9 percent.

The U.S. fiscal framework negotiated by Senators Harry Reid, a Democrat, and Mitch McConnell, a Republican, would fund the government at those Republican-backed levels through Jan. 15, 2014, and suspend the debt limit until Feb. 7, setting up another round of confrontations. The U.S. government has been closed the past 16 days and failure to raise the debt ceiling may have left the country unable to pay its bills past tomorrow.

“America is home to the Hail Mary touchdown pass, the 11th-hour deal, and all you’re seeing here is not necessarily posturing, but the creation of atmosphere for a dramatic agreement to come in at the last minute,” said Brad Schruder, a director of foreign exchange at Bank of Montreal, by phone from Toronto. “You should see the Canadian dollar do better against the U.S. dollar.”

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