The Canadian dollar strengthened for a third day after a report showed Canada’s gross domestic product expanded for a fourth straight month in October, led by growth in manufacturing and wholesale trade.
The currency rose against most of its major peers last week after the Federal Reserve said the U.S. economy was growing fast enough to allow it to start slowing the monetary stimulus it uses to support the economy and cap borrowing costs. Speculative bets the loonie will fall against its U.S. peer increased last week to the highest level in almost seven months.
“The very good GDP and other numbers we’ve seen from both sides of the border support the arguments for continued recovery, which does have a Canada-positive angle,” said Don Mikolich, executive director of foreign-exchange sales at Canadian Imperial Bank of Commerce. The Canadian dollar “starting on the weekend gained some ground as the market has begun some profit-taking on the U.S. dollar.”
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$1.0605 per U.S. dollar at 5 p.m. in Toronto. It touched C$1.0582, the strongest level since Dec. 17. One loonie buys 94.30 U.S. cents.
Canada’s benchmark 10-year government bond were little changed, yielding 2.67 percent. The 1.5 percent security maturing in June 2023 cost C$90.31.
Futures of crude oil, Canada’s largest export, fell 0.6 percent to $98.77 per barrel and the Standard & Poor’s 500 Index of U.S. stocks rose 0.5 percent.
The cost to insure against declines in the loonie versus its U.S. peer fell to almost the lowest in more than eight months, with the three-month 25-delta risk-reversal rate dropping to 1 percent on a closing basis. It closed at 0.99 percent on Dec. 11, the lowest since April. The average this year is 1.25 percent. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.
Canada’s economic output rose 0.3 percent to an annualized C$1.60 trillion ($1.51 trillion), Statistics Canada said today in Ottawa. Analysts surveyed by Bloomberg forecast a 0.2 percent expansion, based on the median of 15 estimates.
“Good numbers, growth figures from Canada,” Dean Popplewell, head analyst at the online currency-trading firm Oanda Corp., said by phone from Toronto. “It basically proves that Canada has done better in the second half of 2013, so we’re actually leaving 2013 on a good note.”
The data support the Bank of Canada’s outlook that momentum in the world’s 11th largest economy is building after a slowdown earlier in the year. The central bank forecast in October that growth would accelerate to a 2.3 percent annualized pace in the current quarter before reaching 2.6 percent at the end of next year.
The Bank of Canada is depending on exporters to lead economic growth as consumers weighed down by record debt levels slow spending.
Bearish bets on the loonie by hedge funds and other speculators rose to the most since the week of May 3, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers on a decline in the Canadian dollar compared with those on a gain -- so-called net shorts -- was 65,500 on Dec. 17, compared with net shorts of 57,514 a week earlier.
“This market was already very short the Canadian dollar and what we’re seeing is just an opportunity in thinly traded markets to take profit on some of those positions,” said Brad Schruder, director of foreign exchange at Bank of Montreal, by phone from Toronto. “As well, a realization that, at its core, a decision by the Fed to taper is really a reflection of the overall strength of the U.S. economy, and markets realizing, at some point, Canada will see a pick-up from that.”
The Canadian dollar is down 3.5 percent this year against nine developed nation peers tracked by the Bloomberg Correlation Weighted Index, while the U.S. dollar has gained 3.9 percent. The yen tumbled 15 percent to lead decliners, and the euro’s 8.3 percent climb paces gainers.