Canadian Dollar Rises Most Since January as Commodities Rebound

The Canadian dollar strengthened the most in almost four months versus its U.S. counterpart as crude oil, the nation’s largest export, rallied the most since June and other commodities rose.

The currency strengthened against the majority of its most traded peers this week as oil, gold and other commodities rallied after plunging last week when China reported slower than expected growth. Canada’s economy likely expanded 0.2 percent in February, unchanged from the prior month, according to the median estimate of 18 estimates in a Bloomberg survey before an April 30 Statistics Canada report.

“The story of the week is just a rebound in commodity prices,” David Bradley, director of foreign-exchange trading at Bank of Nova Scotia’s Scotia Capital unit, said yesterday by phone from Toronto. “That’s all positive for Canada, and I think that, combined with the fact the market was positioned the wrong way, is just helping the loonie appreciate.”

The loonie, as the Canadian dollar is known for the image of the waterfowl on the C$1 coin, rose 1 percent to C$1.0167 per U.S. dollar in the past week, the biggest increase since the five days ended Jan. 4. One loonie buys 98.36 U.S. cents.

Canada’s benchmark 10-year government bonds were little changed, with yields at 1.71 percent. The 1.5 percent security maturing in June 2023 cost C$98.13.

Futures of crude oil rose $5.53 percent to $92.88 per barrel, the most since the five days ended June 29.

Futures Positions

The Standard & Poor’s/TSX Composite Index gained 1.3 percent this week, paring its loss for the year to 1.7 percent.

Bets the Canadian dollar will fall versus its U.S. peer are close to the highest level since 2007, data from the Washington-based Commodity Futures Trading Commission show.

“The market has built up short Canadian positioning but that positioning may mean there’s a bias for the market to cover its shorts a little bit in the loonie and that’s maybe what we’ve seen,” said Jane Foley, senior currency strategist at Rabobank International, by phone from London. “At the same time the market perhaps feels too long dollars generally and I think that is supportive Canadian dollars versus the U.S.”

The difference in the number of wagers on a decline in the Canadian dollar compared with those on a gain -- so-called net shorts -- totaled 71,679 contracts as of April 23 compared to 75,913 the week before, data from the CFTC show. As recently as September, there was a net-long position of about 112,000 contracts, the sharpest reversal on record.

Risk Reversals

The cost to insure against the Canadian dollar falling versus its U.S. counterpart fell to their lowest point in more than a week. The three-month so-called 25-delta risk reversal rate was 1.0275 percent, the lowest point since April 15. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

Gold rose 4.1 percent, its biggest weekly jump since the five days ended January 27, 2012, after falling the most in 33 years last week.

The Standard & Poor’s GSCI Index of 24 commodities rose 2.4 percent.

Implied volatility for three-month options on the Canadian dollar versus its U.S. counterpart reached 5.91 percent, the lowest since February. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings.

“You’ve seen a rebound in gold, you’ve seen a rebound in crude and commodities and I think that’s helped stem the tide to a weaker Canada for the time being,” said Matthew Perrier, director of foreign-exchange trading at Bank of Montreal, by phone from Toronto. “If you look at the early part of the week you had quite a few attempts to take Canada weaker, through the upper end of the range and failed, and yesterday I think we just saw a little bit of short term capitulation.”

Retail Sales

Canadian retail sales rose for a second month in February, registering the biggest two-month gain since 2011. Sales climbed 0.8 percent to C$39.5 billion ($38.4 billion), Statistics Canada said April 23 in Ottawa, following a revised increase of 0.9 percent in the prior month. Economists surveyed by Bloomberg News forecast a 0.3 percent increase, based on the median of 21 projections.

The Canadian dollar is up 1.3 percent in the last three months against nine other developed-nation currencies tracked by the Bloomberg Correlation Weighted Index. The U.S. dollar is up 2.5 percent and the Australian dollar has risen 0.9 percent.