Canada Dollar Weakens as China Flows May Boost Others

The Canadian dollar fell against its Australian and New Zealand counterparts as comments from the Chinese securities regulator indicated the possibility of more foreign investment in Chinese firms.

The Canadian currency declined versus a majority of its 16 most-traded peers as Chinese stocks rose the most in a month after Guo Shuqing, Chairman of the China Securities Regulatory Commission, said China can raise quotas to allow foreigners as well as offshore yuan holders in Hong Kong to buy stocks and bonds in the mainland.

“You’d look at Canada as a bystander in terms of the flow that leads Asia over North America at the moment,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada, by phone from Toronto.

The loonie, as the Canadian dollar is nicknamed for the image of the aquatic bird on the C$1 coin, rose 0.1 percent to 98.37 cents per U.S. dollar at 5 p.m. in Toronto. It declined 0.3 percent to C$1.0394 per Australian dollar and dropped 0.7 percent to 82.93 cents per New Zealand dollar. One Canadian dollar buys $1.0166.

Benchmark 10-year Canadian government bonds were little changed with a yield of 1.94 percent. The price of the 2.75 percent note maturing in June 2022 added one cent to C$106.93.

The Bank of Canada will sell C$3.3 billion ($3.4 billion) of notes maturing in May 2015 on Jan. 16.

China Flows

China is able to boost by 10 times the size of two investment programs that allow foreign investors, as well as offshore yuan holders in Hong Kong, to buy equities and bonds in the mainland, Shuqing said at a conference in Hong Kong.

“With the market less concerned about risk in the first few weeks of the year, and the Aussie and the kiwi picking up more interest, more carry than the Canadian dollar, I think these other two currencies have been a bit more popular,” said Ken Dickson, a director of currencies in Edinburgh at Standard Life Investments, which manages about $264 billion.

“The interest-rate carry is just a little bit better. It’s slightly more favored in the near term,” he said in a telephone interview.

Australian government notes due in two years yield 2.8 percent, which is 161 basis points more than similar-maturity Canadian debt and compares with a spread of 150 basis points at the end of 2012. Treasuries due in two years yield 0.24 percent.

Fed View

Federal Reserve Chairman Ben S. Bernanke said he isn’t aware of any new stimulus tool for the central bank to use to try to boost economic growth.

“As far as I’m aware, there’s no completely new method that we haven’t” already tapped, Bernanke said today in Ann Arbor, Michigan.

The Fed lowered its benchmark interest rate to almost zero in December 2008. Since doing so, its two main approaches for further easing have been communications about the outlook for interest rates and asset-purchase programs, both of which the central bank has used, Bernanke said.

The Canadian dollar will strengthen 1 percent to 98 cents versus its U.S. counterpart by Dec. 31, according to the median estimate of 40 analysts surveyed by Bloomberg News. The forecasts show the loonie is one of just two currencies poised for gains among countries with at least one AAA rating and a stable outlook from the three largest credit-ratings companies.

“Interest-rate spread has been more of play out there in the marketplace for any astute investor,” Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp., said by phone from Toronto. “Everyone certainly is looking toward grabbing some sort of yield advantage. Aussie currently certainly has that at the moment with Canada on hold for quite some time.”

Economists also see the Bank of Canada raising its 1 percent benchmark rate this year, the only predicted increase in the top-rated club of seven nations including Australia, Switzerland and Singapore.

The loonie fell 0.2 percent during the past month versus nine developed-nation peers tracked by Bloomberg Correlation- Weighted Indexes. The greenback has dropped about 0.4 percent.

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