Canadian Dollar Gains From 8-Month Low as Risk Appetite Rises

Canada’s dollar gained from almost the weakest in eight months against its U.S. peer as risk appetite rose after data bolstered confidence in the American economy and Federal Reserve Chairman Ben S. Bernanke said the central bank’s stimulus policies are working.

The currency fell earlier amid political turmoil in Europe and before a report this week forecast to show the nation’s economy stalled in the fourth quarter. It erased losses after the euro rose from a seven-week low and Bernanke said the Fed’s bond buying under its quantitative-easing strategy is having “meaningful, beneficial effects.” Stocks climbed.

“Canadian-dollar gains were on the back of Bernanke’s comments more than anything else,” Greg T. Moore, a currency strategist at Toronto-Dominion Bank, said by phone from Toronto. “The takeaway was that quantitative easing is not going to end any time in the near future.”

Canada’s currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, appreciated 0.3 percent to C$1.0229 per U.S. dollar at 5 p.m. Toronto time after declining 0.2 percent earlier. The loonie has fallen 2.5 percent in February and 3 percent this year. One Canadian dollar purchases 97.76 U.S. cents.

The loonie may be reversing 2013’s losing trend, a technical measure indicated. The currency’s 14-day relative-strength index against the U.S. dollar fell to 27.5, its sixth day below the 30 level some traders see as a sign an asset has moved too much, too fast and may be about to change direction.

‘Dragged Around’

The currency slid to C$1.0304 yesterday, the weakest since June 29, as an inconclusive election in Italy this week raised bets political uncertainty will be prolonged and renewed concern that the nation will dilute its austerity program and Europe’s debt crisis will worsen.

“The Canadian dollar is being dragged around by the nose by global events,” John Curran, senior vice president at Canadianforex Ltd., an online foreign-exchange dealer, said by phone in Toronto.

The euro rose today versus most major peers after Italy sold 6.5 billion euros ($8.5 billion) of debt. It briefly pared gains after Beppe Grillo, whose populist movement was the top vote-getter, rejected a call by Democratic Party leader Pier Luigi Bersani to back a coalition.

The 17-nation currency gained 0.6 percent to $1.3139 after falling yesterday to $1.3018, the lowest since Jan. 7. Against the loonie, it gained 0.3 percent today to C$1.3439.

Canada’s benchmark 10-year government bonds were little changed after rising earlier. The debt yielded 1.86 percent after touching 1.83 percent, the lowest since Jan. 2. The 2.75 percent security due in June 2022 decreased 5 cents to C$107.50.

Bond Auction

The Bank of Canada auctioned C$3.4 billion ($3.3 billion) of five-year notes today, drawing an average yield of 1.36 percent. The 1.25 percent securities mature in March 2018.

The sale attracted C$8.84 billion in bids, for a coverage ratio, which gauges demand by comparing the amount bid with the amount sold, of 2.6. The bank’s last auction of five-year notes, a C$3.4 billion offering on Jan. 9, yielded 1.494 percent and had a coverage ratio of 2.68.

The loonie pared earlier losses after the National Association of Realtors said contracts to buy previously owned U.S. homes climbed more than forecast in January and U.S. Commerce Department data showed orders for American durable goods excluding transportation gear gained the most in a year. Pending-home sales jumped 4.5 percent to 105.9, the highest since April 2010, and the durable-goods orders rose 1.9 percent.

The U.S. is Canada’s biggest trading partner.

The reports followed data yesterday showing U.S. home sales climbed more than forecast in January and consumer confidence in the world’s largest economy increased this month.

Bernanke Testimony

Bernanke told the House Financial Services Committee the U.S. central bank’s easing policies are helping to improve demand for homes and cars, and that the housing market is recovering. It was the second day of his semi-annual testimony to Congress. He spoke yesterday to the Senate Banking Committee.

The Standard & Poor’s 500 Index climbed 1.3 percent, while S&P’s GSCI Index of 24 raw materials fell for a second day, losing 0.5 percent. Futures on crude oil, Canada’s biggest export, were up 0.2 percent to $92.82 a barrel in New York after falling earlier as much as 0.5 percent. Raw materials including oil account for about half of Canada’s export revenue.

The Canadian currency has fallen 1.2 percent this year among 10 developed nation currencies tracked by the Bloomberg Correlation-Weighted Index. The U.S. dollar has gained 2.3 percent and the euro is up 1.7 percent.

Canadian GDP

Canada’s gross domestic product increased 0.6 percent from October through December, economists in a Bloomberg News survey forecast before Statistics Canada reports the data March 1. That would match third-quarter growth, the least since the second quarter of 2011.

Bank of Canada Governor Mark Carney said Feb. 25 some of the risks to the economy he highlighted last month are materializing and policy makers are sticking to their assessment that interest-rate increases have become less urgent than they had anticipated.

Officials have held the benchmark interest rate at 1 percent since September 2010 to support the economy. Trading in overnight index swaps today showed investors have priced in as much as 12 basis points of easing by the central bank by its December meeting, data compiled by Bloomberg showed. A week ago, they had priced in two basis points of tightening.

Options traders’ bearish bias on the Canadian dollar fell from a five-month high. The three-month 25-delta risk reversal rate, which measures the premium charged for the right to buy the U.S. dollar against the loonie versus contracts to sell, declined to 1.38 percent, after touching 1.49 yesterday, the most on an intraday basis since Sept. 7. The five-year average is 1.13 percent.

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