Canada Dollar Rises as Economic Reports Signal Stronger Recovery

Canada’s dollar gained the most against its U.S. peer in more than two months after the nation’s new-home price index rose and American jobless claims dropped, adding to signs the economic recovery is gaining traction.

The Canadian currency climbed versus the majority of its 16 most-traded counterparts as new-home prices rose 0.1 percent in January, led by a 0.3 percent increase in Toronto, the country’s largest city, Statistics Canada said in Ottawa. Lumber and aluminum futures gained along with oil as the differential between Western Canada Select crude and West Texas Intermediate remained at almost a five-month low. Raw materials account for almost half of Canada’s export revenue.

“The strength in the U.S. numbers is helpful for the Canadian currency,” Nick Bennenbroek, the head currency strategist at Wells Fargo & Co., said in a phone interview. “It comes in the context of fairly solid employment reports from the U.S. and Canada last week.”

The loonie, as the Canadian dollar is known for the image of the waterfowl on the C$1 coin, gained 0.5 percent to C$1.0222 per U.S. dollar at 5 p.m. in Toronto. It climbed as much as 0.6 percent, the most since Jan. 2. One loonie buys 97.83 U.S. cents.

Debt Auction

Canada’s benchmark 10-year bond fell, pushing yields up three basis points, or 0.03 percentage point, to 1.95 percent. The 2.75 percent security maturing in June 2022 declined 29 cents to C$106.74.

The Bank of Canada will sell C$3.3 billion ($3.23) worth of two-year government notes on March 20. The 1 percent securities will mature in May 2015. The central bank sold C$3.3 billion ($3.2 billion) of two-year government notes at an average yield of 1.168 percent on Feb. 13. The offering drew C$8.5 billion in bids.

Implied volatility for three-month options on the greenback versus the Canadian dollar touched 6.2, the least since Feb. 19. Implied volatility signals the expected pace of currencies swings and is quoted by traders to set prices. Lower volatility correlates with a stronger Canadian dollar versus its U.S. counterpart.

Western Canada Select, the benchmark for oil-sands bitumen, traded at a discount of $20.25 to U.S. West Texas Intermediate price after hitting $18.50 on March 11, the lowest since Oct. 17. The discount has fallen by $22.25 since Dec. 15.

‘Most Important’

“The Western Canada Select-West Texas Intermediate spread should be on every Canadian dollar traders screen, because it’s the most important factor in trade right now,” Adam Button, currency analyst for in Montreal, said by phone.

Lumber futures for May deliver rose $10, the most allowed by the Chicago Mercantile Exchange. The contract for May delivery rose as high as $409.90 per 1,000 board feet after the close of regular trading, extending a rally to the costliest for a most-active contract since March 2005. Aluminum for delivery in three months rose as much as 1.3 percent to $1,990.50 a metric ton. Oil climbed 0.7 percent to $93.18 a barrel in New York.

Canada’s housing gain matched the forecast of economists in a Bloomberg survey. From a year earlier, new home prices increased 2.2 percent in January.

First-time jobless claims in the U.S., Canada’s biggest trade partner, fell by 10,000 to 332,000 in the week ended March 9, the fewest since mid-January, according to data today from the Labor Department in Washington. The median forecast of 49 economists surveyed by Bloomberg called for an increase to 350,000. The four-week average declined to a five-year low.

Employment Reports

This came after reports last week that showed employment gains in Canada and the U.S. exceeded forecasts, with both nations’ unemployment rates at four-year lows.

“If we look at the North American economy as a whole, the second half of 2013 is looking like the best half since the crisis,” Button said.

The loonie strengthened 0.5 percent to 94.02 yen after Japan’s lower house of parliament endorsed Haruhiko Kuroda, an advocate of increased stimulus, as the next Bank of Japan governor. The upper house, where Abe’s Liberal Democratic Party lacks a majority, is scheduled to vote tomorrow.

The loonie has fallen 2.1 percent in the past six months against nine developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. Only the yen and the pound have fallen more, at 17 percent and 4.5 percent. The U.S. dollar has risen 3.6 percent.