Canadian Dollar Rises as North American Growth Outpaces Europe

The Canadian dollar had its biggest weekly gain in 20 months against a basket of nine developed-nation currencies as better-than-forecast North American economic reports contrasted with slowing European growth.

The currency rose 1.9 percent as measured by the Bloomberg Correlation-Weighted Index amid signs of economic weakness in the 17-nation currency bloc that fueled speculation the European Central Bank may cut interest rates as soon as at its meeting Nov. 7. Canada’s dollar fell against its U.S. peer last month as the Bank of Canada removed language about the need for higher interest rates that was included in every policy statement for more than a year. The nation added almost the same number of jobs in October as the month before, according to a Bloomberg survey of economist before the Nov. 8 report.

“On the week, CAD’s been a star performer,” said Greg Anderson, head of global foreign-exchange strategy at Bank of Montreal, by phone from New York. “The market had gotten short CAD on a lot of crosses, and particularly euro/CAD cross, and the move in euro has shaken a lot of those out and CAD has come out a winner.” A short position is a bet that an asset will decrease in value.

The loonie, as the Canadian dollar is known for the image of the waterfowl on the C$1 coin, gained 0.3 percent this week to C$1.0420 per U.S. dollar. One loonie buys 95.97 U.S. cents.

Market Measures

Against the Bloomberg Correlation-Weighted Index, Canada’s dollar rose the most since the week ending March 2, 2012. The loonie added 2.5 percent to C$1.4055 per euro, snapping a four-week loss.

Canada’s benchmark 10-year government bonds fell, with yields rising eight basis points, or 0.08 percentage point, to 2.49 percent. The 1.5 percent security maturing in June 2023 dropped 60 cents to C$91.59.

The Bank of Canada will auction C$3.4 billion ($3.3 billion) of five-year bonds on Nov. 6. The securities will mature in March of 2019.

The Canadian currency fell 1.2 percent during October and is off 4.8 percent this year versus the greenback, according to data compiled by Bloomberg. Against its 16 most-traded counterparts, the loonie lost the most last month against Australia’s dollar and gained the most this year versus the South African rand.

Economic Numbers

The euro area’s annual inflation rate declined to 0.7 percent last month, the least since November 2009, from 1.1 percent in September, the European Union’s statistics office said Oct. 31. Unemployment in the region was at a record 12.2 percent in September, separate data showed.

Canada’s gross domestic product grew faster than economists forecast in August on record extraction of oil and natural gas, putting the economy on track for its fastest quarterly expansion in two years. Output rose 0.3 percent to an annualized C$1.59 trillion, Statistics Canada said Oct. 31 in Ottawa, beating the 0.1 median forecast in a Bloomberg economist survey.

In the U.S., the Institute for Supply Management’s index rose to 56.4, the highest since April 2011, from 56.2 a month earlier, the Tempe, Arizona-based group’s report showed yesterday. Readings above 50 indicate growth. Economists in a Bloomberg survey called for a decline to 55.

“Growth in the U.S. is good for Canada so you almost have to look at it in North American terms,” said Darcy Browne, managing director of currencies at Canadian Imperial Bank of Commerce’s CIBC World Markets Unit, by phone from Toronto. “If they’re growing, we’re growing by default, and we’ll be right behind them in that trade so we’re kind of going up and down with the dollar but to a lesser degree.”

Jobs Report

Canada’s unemployment rate increased to 7 percent in October from 6.9 percent the month before, according to the median estimate in a Bloomberg survey of 15 economists. Employment rose 10,000, compared with 11,900 the month before, a separate survey projected.

Crude oil, Canada’s largest export, fell 3.3 percent to $94.60 per barrel in New York, the lowest level since June. The discount Canadian producers face compared to U.S. crude benchmarks was $40, the most since January.

The loonie touched C$1.0497 per U.S. dollar on Oct. 30, its lowest point since September, after the Federal Reserve maintained its $85 billion in monthly bond purchases, which tend to devalue the U.S. dollar, while leaving open the possibility for future reductions by saying economic growth persists.

“There’s an overall view we could be going through a patch of softness in U.S. economy, but longer term, there’s definitely a desire to pull some monetary accommodation out,” said Mark Frey, chief market strategist at Cambridge Mercantile Group, a global foreign-exchange and payments provider, by phone from Victoria, British Columbia. The U.S. dollar “will certainly outperform the Canadian dollar,” he said.

Canada’s dollar will end the year at C$1.04, according to the median estimate in a Bloomberg News survey of analysts.

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