Canadian Dollar Gains Versus Major Peers on U.S. Retail Growth

The Canadian dollar advanced versus 15 of its 16 most-traded peers after April retail sales unexpectedly rose in the U.S., Canada’s biggest trading partner.

The currency gained with its U.S. counterpart as the 0.1 percent increase followed a 0.5 percent drop in March, Commerce Department figures showed in Washington. The median forecast of economists surveyed by Bloomberg called for a 0.3 percent decrease. Canada’s currency climbed against the dollars of New Zealand and Australia, fellow commodities exporters, as crude oil declined for a third day.

“What’s good for the U.S. is generally good for Canada, so in that regard the Canadian dollar will react accordingly,” Mazen Issa, Canada macro-strategist at Toronto-Dominion Bank’s TD Securities, said by phone from Toronto. “Our bias it still towards a weaker Canadian dollar because our expectation over the medium-term is that growth in the U.S. will be much more robust than it will be in Canada. But, for the day at hand, a positive day for the Canadian dollar.”

The loonie, as Canada’s currency is known for the image of the aquatic bird on the C$1 coin, dropped almost 0.1 percent to C$1.0106 per U.S. dollar at 5 p.m. in Toronto. One loonie buys 98.95 U.S. cents.

Futures on crude oil, Canada’s biggest export, dropped 1.1 percent to $95.01 per barrel in New York. The Standard Poor’s 500 Index of U.S. stocks was little changed.

Canada’s benchmark 10-year government bonds fell for a second day, with yields rising two basis points, or 0.02 percentage point, to 1.91 percent. The 1.5 percent security maturing in June 2023 lost 19 cents to C$96.30.

Risk Reversals

The cost to insure against declines in the loonie versus its U.S peer were near their highest point in two months. The three-month so-called 25-delta risk reversal rate was 1.38 percent, near the 1.41 level reached May 10 that was the highest since Feb. 26. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

Implied volatility for three-month options on the Canadian dollar versus its U.S. counterpart ended the day at 6.4 percent, almost the highest level since April 17. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings.

‘Overdone’ Loonie

“The loonie is probably a tad overdone -- your risk reward of selling the loonie at these levels is probably not too bad,” Dean Popplewell, head analyst at online currency-trading firm Oanda Corp., said by phone from Toronto. “We’ll probably see some of these Canada cross positions being closed and crosses being taken, and I’d probably feel more comfortable starting to sell the dollar on rallies, and sell some Canada around parity.” Crosses refer to trades with currencies other than the U.S. dollar.

The loonie gained to the highest level in almost seven months against Australia’s dollar as John Taylor, founder of currency-hedge fund FX Concepts LLC, said the Aussie was “in a bubble” due to a unsustainable commodities rally fueled by Chinese demand.

“Australia is closely tied with China,” Taylor said, calling the Aussie one of his least-favorite currencies. “China is pushing internal growth, not building so many highways.”

Canada’s dollar gained 0.7 percent to C$1.0058 per Australian dollar and touched C$1.0046, the strongest since Oct. 15. It rose 0.5 percent to 83.37 Canadian cents per New Zealand dollar, and reached 83.18, the strongest since Feb. 8.

Options Volume

U.S. dollar-Canada dollar was the sixth-most actively traded pair in the over-the-counter foreign-exchange options market today, totaling $1.4 billion of the $34 billion overall. Dollar-loonie options trading was 23 percent more than the average of the past five Mondays at a similar time in the day. U.S. dollar-yen was the most traded at $12 billion.

Data this week is expected to show the economies of the nations using the euro contracted for the sixth consecutive quarter in the three months through March.

The loonie has gained 1.8 percent this year against nine developed-nation counterparts tracked by the Bloomberg Correlation Weighted Index. The Australian dollar has lost 1 percent, and the U.S. dollar has added 3.9 percent.

Before it's here, it's on the Bloomberg Terminal.