Canadian Dollar Reaches Strongest in 4 Days as Economy Expands

Canada’s dollar touched a four-day high after a report showed gross domestic product increased at the fastest pace in two years in July, adding to evidence the nation’s economy is rebounding from a second-quarter slowdown.

The currency strengthened versus its U.S. counterpart as Canadian consumer sentiment climbed to the highest in more than two years as employment rose and the country’s housing market remained buoyant, according to the new Bloomberg Nanos Canadian Confidence Index.

“There’s been a significant amount of bearish expectations regarding Canadian growth, and overall it’s been a little bit more positive recently,” said Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York. “The Canadian dollar has had a tendency to outperform.”

The loonie, nicknamed for the image of the aquatic bird on the C$1 coin, appreciated as much as 0.3 percent to C$1.0275 per U.S. dollar before erasing gains at day’s end to trade little changed at C$1.0309 at 5 p.m. in Toronto. One Canadian dollar buys 97 U.S. cents.

The currency touched C$1.0182 per U.S. dollar on Sept. 19, a three-month high, after the Federal Reserve unexpectedly maintained the monetary stimulus it uses to lower borrowing costs, easing concern that higher U.S. interest rates will slow global growth.

Canada’s benchmark 10-year government bonds rose, pushing yields down one basis point, or 0.01 percentage point, to 2.54 percent. The 1.5 percent securities maturing in June 2023 added 10 cents to C$91.13.

Canadian Data

Statistics Canada said output rose 0.6 percent to an annualized C$1.58 trillion ($1.54 trillion), the biggest gain since July 2011. GDP fell 0.5 percent in June, the biggest decline since the 2009 recession. The median forecast in a Bloomberg economist survey was for 0.5 percent growth in July.

The data “clearly represented a snap-back in economic activity following a contraction,” Adrian Miller, director of fixed-income strategies in New York at GMP Securities LLC, wrote today in a note to clients.

The Nanos Canadian Confidence Index, weekly measurement of the economic mood of Canadians, rose to 59.75 in the period ended Sept. 27, from 59.23 the previous week. That’s the highest since March 2011 for the gauge, which tracks consumers’ perceptions of the strength of the economy, job security, real estate and their financial situation.

Option Volatility

Implied volatility for one-year options on the Canadian dollar versus its U.S. counterpart reached 7.13 percent today, the highest since Sept. 17. Implied volatility is used to set option prices and gauge the expected pace of currency swings. The average for this year is 7.39 percent.

Futures traders decreased their bets the Canadian dollar will fall against its U.S. peer for a third straight week, figures from the Washington-based Commodity Futures Trading Commission showed. The difference in the number of wagers by hedge funds and other large speculators on a decline in the loonie versus those on a gain, known as net shorts, was 5,675 on Sept. 24, compared with 18,764 a week earlier.

The one-year so-called 25-delta risk-reversal rate, which measures the premium charged for the right to buy the U.S. dollar against its Canadian counterpart versus contracts to sell, rose to 1.73 percent, the highest in more than three weeks. The 2013 average is 1.56 percent.

Trading in over-the-counter options for the U.S. dollar-Canadian dollar pair amounted to $1.5 billion, making up 7.6 percent of the $19.7 billion daily total. Greenback-loonie trading was 279 percent more than the average for the past five Mondays at a similar time in the day, according to Bloomberg analysis.

The loonie fell 3.3 percent in the past year against nine other developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index. The yen lost 21 percent, and the Australian dollar slid 9.2 percent. The U.S. dollar strengthened 2.1 percent.

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