Canadian Dollar Strengthens on Speculation of Flows From Japan

The Canadian dollar strengthened against its U.S. counterpart for the third day as investors seek higher-yielding currencies of commodity-exporting nations.

The loonie, as the currency is nicknamed, gained on speculation heightened demand from Japan for cross-border assets will result from a stimulus package announced last week by Bank of Japan Governor Haruhiko Kuroda. The Australian and New Zealand dollars also advanced.

“Because global central banks are pressing so hard on the monetary gas pedal, especially now with the Bank of Japan, we are seeing inflows from investors from Europe and Japan just to take advantage of Canada’s relatively higher interest rates,” Sal Guatieri, senior economist at Bank of Montreal, said in a phone interview.

The loonie gained 0.2 percent at C$1.0142 per U.S. dollar at 5 p.m. in Toronto. It rose 1 percent to 98.38 per yen. One loonie buys 98.60 U.S. cents. The Australian dollar increased 0.5 percent while New Zealand’s currency rose 0.6 percent.

Bonds fell. The yield on the benchmark 1.5 percent security maturing in June 2023 rose three basis points, or 0.03 percentage point, to 1.80 percent as the price fell 29 cents to C$97.20.

Debt Sale

The Bank of Canada sold C$2.7 billion ($2.7 billion) of three-year securities at an average yield of 1.155 percent. The 1 percent notes mature in August 2016.

Crude oil, the nation’s largest export, was 0.5 percent higher at $94.64 a barrel in New York, after falling as much as 0.9 percent. Canada’s discount for its heavy oil to U.S. West Texas Intermediate was $12.25 after holding at $12 the past three days, the narrowest level on a closing basis since October. The discount reached a record $42.50 a barrel on Dec. 14.

The Standard & Poor’s 500 Index of stocks rose 1.2 percent while the S&P/TSX Composite Index, the benchmark Canadian equity gauge, added 0.4 percent.

Kuroda, who took over as Bank of Japan governor in March, said April 4 the central bank will double monthly bond buying to 7.5 trillion yen ($76 billion), while suspending a cap on holdings. He said today that while policy makers will continually monitor whether additional stimulus is needed, steps taken last week are sufficient to achieve the bank’s 2 percent inflation goal.

Japan Watch

“The market is wondering where does this Bank of Japan liquidity end up,” said Adam Cole, head of Group of 10 currency strategy at Royal Bank of Canada in London. “Canada has been left behind a bit because of the lower yield and the Bank of Canada’s reluctance to raise interest rates.”

The Canadian dollar fell last week after Canada reported 54,500 fewer jobs in March, the biggest monthly employment decline since the country was in recession in 2009.

In their last rate report March 6, Bank of Canada policy makers led by Governor Mark Carney softened their bias to raise interest rates, saying the current lending rate will be appropriate “for a period of time.” The central bank’s next rate announcement on April 17 may also contain references to a longer pause, Guatieri said.

The Bank of Canada policy rate will remain 1 percent until the third quarter of 2014, according to a survey of economists by Bloomberg.

The Canadian dollar has lost 0.5 percent this year against nine other developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index. The U.S. dollar gained 2 percent and the euro rose 0.9 percent.

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