Canadian Currency Strengthens for a Third Week as Commodities Climb on Fed
Canada’s dollar strengthened for a third week against its U.S. counterpart, its longest winning streak in three months, as commodities gained after the Federal Reserve pledged to extend its freeze on U.S. interest rates.
The currency appreciated past parity with the greenback on Jan. 26 for the first time since November after Fed Chairman Ben S. Bernanke said the option for further debt purchases by the central bank, a tactic called quantitative easing, is still “on the table.” Investors also sought higher-yielding assets amid bets Europe’s debt crisis may ease. Canadian payrolls rose this month, data may show next week.
“The Fed was probably the biggest driver this week,” said Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York. “People see a potential further round of quantitative easing as leading to higher asset prices, and commodity currencies will benefit.”
Canada’s dollar advanced 1.1 percent to C$1.0018 per U.S. dollar yesterday in Toronto, from C$1.0132 on Jan. 20, in its longest winning stretch since the four weeks ended Oct. 28. It touched 99.82 Canadian cents on Jan. 26, reaching a one-for-one level with the greenback for the first time since Nov. 1. One Canadian dollar purchased 99.82 U.S. cents yesterday.
Government bonds rose, pushing the benchmark 10-year note yield down eight basis points, or 0.08 percentage point, the most since Dec. 16, to 1.98 percent. It touched 2.11 percent Jan. 23, the highest since Dec. 7. The price of the 3.25 percent securities due in June 2021 increased 66 cents to C$110.73.
The Canadian currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, climbed Jan. 25 as the Fed said it anticipated keeping the key U.S. interest rate at almost zero through 2014. The Federal Open Market Committee, in a statement after a two-day meeting, cited a high unemployment rate and a depressed housing sector and said it “expects to maintain a highly accommodative stance for monetary policy.”
Fed Chairman Ben S. Bernanke, speaking at a news conference, said the option of further large-scale bond purchases is still “on the table.” The Fed previously bought $2.3 trillion of debt in two rounds of quantitative easing.
The central bank’s low-rate pledge boosted the attraction of Canada’s main interest rate. The U.S. benchmark has been at a range of zero to 0.25 percent since December 2008. The Bank of Canada, citing a deteriorating global economy, kept its overnight rate at 1 percent at a meeting on Jan. 17. It was raised in 2010 from a 0.25 percent rate that policy makers adopted to support the economy in the financial crisis.
‘Don’t Think So’
“The Bank of Canada has also been highly accommodative, and has a commitment to hold rates lower,” Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, said on Jan. 25. “Does that mean they are going to hold steady until 2014? I don’t think so.”
Crude oil, Canada’s biggest export, gained for the first time in three weeks. Crude for March delivery rose 1.3 percent to $99.76 a barrel in New York. The Thomson Reuters/Jefferies CRB Index (CRY) of raw materials increased 2.5 percent, the biggest weekly jump since December. Raw materials including oil generate about half of Canada’s export revenue.
Greek Finance Minister Evangelos Venizelos said yesterday the nation’s government was “one step away” from completing talks on a voluntary debt swap and was negotiating with international creditors on the terms for a second financing package at the same time.
European Union leaders meet Jan. 30 in a summit to complete a deficit-reduction treaty and discuss how to spur growth in an effort to resolve the debt crisis.
The Canadian dollar fluctuated yesterday after reversing gains when data showed the economy of the U.S., Canada’s biggest trade partner, grew less than forecast.
U.S. gross domestic product expanded at a 2.8 percent annual pace in the fourth quarter, following a 1.8 percent gain in the third. The median forecast of 79 economists surveyed by Bloomberg News called for a 3 percent increase. Excluding a jump in inventories, growth was 0.8 percent.
“The market was expecting a stronger U.S. gross domestic product number, and it obviously didn’t fulfill those expectations,” said John Curran, a senior vice president at CanadianForex Ltd., an online foreign-exchange dealer.
Canada’s GDP rose 0.2 percent in November after stagnating the previous month, economists in a Bloomberg survey forecast before the government’s statistics bureau reports the data on Jan. 31.
The nation added a net 22,000 jobs this month, data due on Feb. 3 is projected to show.
Implied volatility for one-month options on the Canadian dollar versus the greenback was almost at a nine-month low yesterday after falling for a third day and touching 8.2 percent. It reached 8.1 percent on Jan. 20, the least since April 21. Implied volatility, which traders quote and use to set option prices, signals the expected pace of swings in the underlying currency. The measure averaged 10 percent over the past year.
The loonie declined 0.5 percent over the past month against nine other developed-nation currencies monitored by Bloomberg Correlation-Weighted Currency Indexes. The U.S. dollar dropped 2.3 percent, and the euro fell 1.1 percent.
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