Canada Dollar Gains With Signals of Stimulus From Europe

The Canadian dollar pared losses after the Bank of England and European Central Bank assured investors interest rates would remain low, bolstering the allure of riskier assets.

The currency fell earlier before a report tomorrow that will show Canada lost 7,500 jobs in June after adding 95,000 positions the month before, according to a Bloomberg survey of 20 economists. A U.S. report is expected to show job gains. The Federal Reserve has tied the reduction of its monetary stimulus program to improvements in the job market even as the world’s other central banks have said slow growth warrants more action.

“There is now more optimism because two important central banks are committed to very accommodative monetary policy, and that should help with risk appetite,” said Jane Foley, senior currency strategist at Rabobank International, by phone from London. “If you have the ECB, the Bank of Japan, the Bank of England all maintaining very accommodative monetary policy, then even if the Fed begins to taper investors should be assured there’s still a huge amount of liquidity out there.”

The loonie, as the Canadian dollar is known, declined 0.1 percent to C$1.0515 per U.S. dollar at 5:00 p.m. in Toronto. One loonie buys 95.10 U.S. cents. The loonie earlier fell as low as C$1.0558.

Canada’s benchmark 10-year bonds were little changed after rising earlier. The 1.5 percent bond maturing in June 2023 yielded 2.42 percent while the price fell 3 cents to C$92.00.

Futures of crude oil fell 0.1 percent to $101.12 per barrel. The U.S. stock market is closed today for an American holiday.

Carney, Draghi

Bank of England Governor Mark Carney signaled the central bank will keep interest rates at a record low for longer than investors had expected today. In a separate statement later, ECB President Mario Draghi said interest rates will stay low for an “extended period.”

A report on non-farm payrolls in the U.S., Canada’s largest trade partner, is forecast to show 165,000 job gains tomorrow.

“Non-farm is by far the bigger release for Canada,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia, said by phone from Toronto. “I think markets will be really forgiving of a weak Canadian data print just because of how much we performed last month.”

The U.S. Federal Reserve has been buying $85 billion of bonds per month in an effort to drive down interest rates and stimulate the economy. Chairman Ben S. Bernanke said at a press conference June 19 that bond purchases could end by the middle of next year if the U.S. economy continues to improve.

The cost to insure against declines in the U.S. dollar versus its U.S. peer fell to its lowest in two weeks.

Risk Reversals

The one-month so-called 25-delta risk reversal rate fell as low as 1.5825, the least since June 19. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

The Canadian dollar has risen 0.4 percent in the last month against nine developed nation currencies tracked by the Bloomberg Correlation Weighted Index. The U.S. dollar has increased 2.3 percent while the Australian dollar led declines with a 3.3 percent drop.

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