Canada Dollar Gains to Highest in Month on Rate-Rise Speculation

The Canadian dollar touched the highest in a month versus its U.S. peer as oil, the nation’s largest export, advanced and investors bet stronger economic data may convince the Bank of Canada to raise interest rates.

The currency fluctuated against the U.S. dollar as Canadian factory sales unexpectedly fell in April. Canada’s dollar rose for the second week after the nation posted its strongest job gains in more than a decade last month and home construction rose the most in 13 months, driving expectations to the highest in more than a year the Bank of Canada will raise rates.

“With the exception of today, the data in Canada has been strong, and with the Canadian dollar you always have to consider that the BOC has a tightening bias,” Stephen Gallo, head of European foreign-exchange strategy at Bank of Montreal, said by phone from London. “When the data turns up for Canada, you can get some pretty sizable moves up in the CAD, because they are hawkish, they do have a hawkish bias.”

The loonie, as the Canadian dollar is nicknamed for the image of the aquatic bird on the C$1 coin, fell 0.1 percent C$1.0170 per U.S. dollar at 5 p.m. It earlier strengthened to C$1.0137, the highest since May 14. One loonie buys 98.33 U.S. cents.

The currency gained 0.3 percent this week after rallying 1.7 percent the previous week.

Oil, Bonds

Futures on crude oil rose 1.1 percent to $97.79 per barrel in New York. The discount Canada faces for its oil compared to U.S. benchmarks widened to $10.25 per barrel after touching its narrowest in nine months on June 12.

Canada’s 10-year benchmark government bonds rose, with yields falling two basis points. or 0.02 percent, to 2.12 percent after reaching 2.21 percent June 12, the highest in 15 months. The 1.5 percent security maturing in June 2023 added 15 cents to C$94.47.

Futures traders decreased their bets that the Canadian dollar will decline against the greenback, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers on a decline in the loonie compared with those on a gain -- so-called net shorts -- was 35,907 on June 11, compared with net shorts of 39,776 a week earlier.

The Bank of Canada, whose key interest rate of 1 percent is the highest among the Group of Seven nations, is the only central bank among them with a leaning, or bias, toward higher rates. New central-bank Governor Stephen Poloz reiterated that stance in his first public comments on June 6. Poloz will give his first speech as governor on June 19 in Oakville, Ontario.

‘Good Fundamentals’

“I’m lining up the Canadian dollar against euro zone economies, against other G10 economies, and generally speaking Canada can still boast a decent amount of good fundamentals,” said Jane Foley, senior currency strategist at Rabobank International by phone from London. “The ultra-bearish view has certainly taken a big knock, but I think in order to dismiss it entirely we have to wait until we see improved U.S. data.”

Canadian manufacturing sales dropped 2.4 percent to C$48.2 billion ($47.4 billion), Statistics Canada said in Ottawa, while inventories rose to the highest in records dating to 1992. Economists surveyed by Bloomberg forecast sales would rise 0.3 percent. A separate report showed wholesale

Consumer confidence in the U.S. fell to 82.7 in June from a six year high of 84.5 the prior month, according to the Thomson Reuters/University of Michigan index.

Implied volatility for three-month options on the Canadian dollar versus its U.S. counterpart traded at 7.20 percent, its lowest point since May 17. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings.

The Canadian dollar has declined more this week than the currencies of fellow commodity exporting countries among a basket of nine developed nation currencies tracked by the Bloomberg Correlation Weighted Index. The loonie has lost 0.98 percent compared to the Australian dollar’s 0.4 percent loss and the New Zealand currency’s 0.92 percent gain.