Canadian Currency Rises From Almost Seven-Week Low as Oil SurgesJohn Detrixhe
Canada’s dollar advanced from almost a seven-week low after crude oil, the nation’s biggest export, climbed to the highest level since July on speculation tension in Syria will disrupt Middle East supplies.
The currency, called the loonie, slid earlier as the haven appeal of U.S. assets rose while the Obama administration weighed retaliatory action against the Syrian government for what officials said was a chemical-weapons attack. The loonie sank last week amid lower-than-forecast economic data and bets the U.S. Federal Reserve will begin slowing monetary stimulus. Yields on Canadian 10-year bonds fell today the most in a year.
“It’s been sort of a correlation with oil, but if we look at the past couple of days, it’s still within a pretty tight range,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview. “It’s still biased toward a bit more Canadian-dollar weakness in the near term.”
The loonie, nicknamed for the image of the aquatic bird on the C$1 coin, appreciated 0.3 percent to C$1.0474 per U.S. dollar at 5 p.m. in Toronto after touching 1.0472, the strongest since Aug. 22. It lost as much as 0.4 percent earlier to C$1.0540 after touching C$1.0568 on Aug. 23, the weakest since July 9. One Canadian dollar buys 95.48 U.S. cents.
Implied volatility for three-month options on Canada’s dollar versus its U.S. counterpart touched 7.97 percent, the highest level since July 17 on an intraday basis. The measure is used to set option prices and gauge the expected pace of currency swings. The average for this year is 6.8 percent.
The Canadian dollar erased losses as crude oil climbed and as a drop in the Mexican peso, another so-called commodity currency, failed to influence trading in the loonie, said Sebastien Galy, a senior currency strategist at Societe Generale SA in New York. The peso slid against most major peers, losing 0.4 percent to 13.2346 to the greenback.
Futures on West Texas Intermediate crude jumped as much as 3.2 percent to $109.32 a barrel in New York, the highest level since July 19.
“You have oil quite a bit stronger today, so that should dictate a higher Canadian dollar, but you have events in Syria and elsewhere are causing a bit of a flight to the U.S. dollar,” said Blake Jespersen, managing director of foreign exchange at the Bank of Montreal, by phone from Toronto.
A U.S. official said the Obama administration was constructing the legal and political justification for a limited military strike on Syria that would demonstrate international censure against chemical weapons. U.S. Secretary of State John Kerry said yesterday the evidence is “undeniable” that chemical weapons were used against residents of a Damascus suburb last week in Syria’s civil war.
Standard & Poor’s GSCI Spot Index of 24 raw materials climbed 1.9 percent, the most since May on a closing basis. Stocks fell, with the S&P 500 Index losing 1.6 percent.
Canadian government bonds rose, pushing the yield on the benchmark 10-year security down nine basis points, or 0.09 percentage point, the most since August 2012, to 2.56 percent. It was the lowest level since Aug. 13. The yield climbed on Aug. 23 to 2.78 percent, the highest since July 2011. The price of the 1.5 percent debt due in June 2023 added 71 cents to C$90.90.
The loonie slid on Aug. 21 after minutes released by the U.S. central bank of its July meeting showed most policy makers were “broadly comfortable” with Chairman Ben S. Bernanke’s plan to start reducing monetary stimulus this year if the economy improves.
The Fed will slow the pace of its $85 billion in monthly bond purchases at policy makers’ Sept. 17-18 meeting, according to 65 percent of economists surveyed by Bloomberg from Aug. 9-13. The purchases have spurred concern they’ll lead to inflation and debase the U.S. dollar. Investors are betting slower bond buying will cause the greenback to strengthen against its Canadian peer.
The Canadian dollar lost 1.5 percent last week, the most since the five days ended June 21, as data showed wholesale and retail sales fell in June and consumer-price gains stayed below the central bank’s 1.2 percent inflation target in July for a 15th month.
“Obviously what happens with the Fed in September is going to be a larger driver for the Canadian dollar,” said Kim of RBS. “Despite the hawkish tint on the Bank of Canada’s policy outlook, the data hasn’t been as strong.”
Bank of Canada Deputy Governor John Murray said investor reaction to comments about tapering of monetary stimulus by the U.S. Federal Reserve may have been overdone because there are signs the process will be smooth.
“The pronouncements appeared to trigger an exaggerated reaction in financial markets,” Murray said in a speech today in Kingston, Ontario. “A number of factors are working in favor of a smoother transition.”
Canada has benefited from Fed stimulus that boosted demand for exports, Murray said, and the lasting rebound that’s coming will more than offset the drag of higher interest rates as the U.S. central bank withdraws stimulus.