Canadian Dollar Approaches One-Week High on Risk Appetite
Canada’s dollar approached the strongest level in more than a week versus its U.S. counterpart as crude oil, the nation’s biggest export, and stocks rose amid a jump in risk appetite.
The Canadian currency dropped yesterday versus the greenback as investors sought safety amid concern political turmoil in Europe would intensify the region’s debt crisis. Appetite for higher-yielding assets increased today after a gauge of European services shrank less than first estimated.
“We’re really seeing it recapture some of the ground lost, and some of that could be in response to what we’re seeing,” Emanuella Enenajor, an economist at Canadian Imperial Bank of Commerce’s CIBC World Markets unit, said by phone from Toronto. “Oil prices look a bit firmer today, equity markets look a bit firmer, and you’re also seeing some of those fears from yesterday dissipating.”
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, gained 0.3 percent to 99.56 cents per U.S. dollar at 5 p.m. in Toronto. It reached 99.48 cents yesterday, the strongest since Jan. 23, before dropping as much as 0.3 percent. One Canadian dollar purchases $1.0044.
Benchmark 10-year government bonds fell, pushing yields up three basis points, or 0.03 percentage point, to 2.02 percent. The price of the 2.75 percent securities maturing in June 2022 decreased 26 cents to C$106.21.
The government will sell C$2.7 billion ($2.7 billion) of three-year notes tomorrow. The 1.25 percent securities are due in February 2016. The Bank of Canada will provide more details on Feb. 7 of its two-year note auction next week.
The Canadian dollar strengthened as crude oil and other commodities advanced. An index based on a survey of purchasing managers in Europe’s services industries rose to 48.6, from 47.8 in December, London-based Markit Economics Ltd. said in a report. That’s above an initial estimate of 48.3 published on Jan. 24.
“Just looking at some of the data overnight, there’s some modest positives,” Mazen Issa, Canada macro strategist at Toronto-Dominion Bank (TD)’s TD Securities unit, said from Toronto in a telephone interview. “And then at the same time we did have a fairly sharp selloff yesterday, so I think it’s just a bit of a bounce back.”
The loonie strengthened beyond its 200-day moving average of 99.89 cents for a fourth day. Moving averages, which indicate momentum, are seen by some traders as potential turning points.
The loonie slid on Jan. 25 to C$1.0100 per dollar, the weakest level in six months. It appreciated to 98.16 cents, the strongest in almost three months, on Jan. 11.
Futures on crude oil advanced as much as 0.9 percent today to $97.07 per barrel in New York before trading at $96.68, up 0.5 percent. The Standard & Poor’s 500 Index climbed 1 percent after dropping 1.2 percent yesterday.
S&P’s GSCI Index of 24 commodities added 0.4 percent. Raw materials including oil account for about half of Canada’s export revenue.
“It’s really in a state of flux, it’s just looking for direction,” Eimear Daly, a currency-market analyst at Monex Europe Ltd., said of the loonie by telephone from London. “We had a massive selloff yesterday because of what was happening in Europe.”
Spanish Premier Mariano Rajoy faced calls to resign after reports of illegal payments emerged, and in Italy, a poll showed former prime minister Silvio Berlusconi narrowed the frontrunner’s lead in elections later this month. Berlusconi was pressured to resign in 2011 as soaring bond yields threatened the country’s ability to avoid defaulting on its debts.
Options traders were the least bearish on the loonie in more than a week, with the three month 25-delta risk reversal rate touching 0.913 percentage point, the least since Jan. 24. The rate shows the premium charged for the right to buy the U.S. dollar versus contracts to sell.
Statistics Canada will report Feb. 8 that the country’s unemployment rate increased to 7.2 percent last month, from 7.1 percent in December, according to the median forecast in a Bloomberg survey of 23 economists. Net employment grew in January by 5,000 jobs, economists forecast, compared with a revised increase of 31,200 the previous month.
The loonie is “probably going to track sideways until Friday’s unemployment release,” David Doyle, a strategist at Macquarie Capital Markets, said by phone from Toronto. “That to me is the big event on the docket for Canada this week, and it’s hard to see it moving materially before that.”
The Canadian dollar has fallen 0.7 percent this year among 10 developed-nation currencies monitored by Bloomberg Correlation-Weighted Indexes. The U.S. currency has declined 0.2 percent.
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