Canadian Dollar Gains for 4th Day as Commodity Prices Climb

The Canadian dollar advanced for a fourth day, the longest streak since September, as crude oil climbed to a six-week high to lead gains in commodities.

Canada’s currency touched an almost four-year low against the euro as Italy’s economy stopped shrinking and European finance ministers met in an attempt to break a deadlock on a bank-failure bill. The currency strengthened from a three-year low reached versus its U.S. peer last week when the Bank of Canada warned of inflation below its target band, bolstering bets interest rates will stay low.

“It’s a combination of crude and other commodities -- copper, as well -- that’s probably giving a bit of a boost to the loonie,” said David Doyle, a strategist at Macquarie Capital Markets, said by phone from Toronto. “The loonie had become a little beaten up and a lot of people had piled onto that trade. That trade has run its course, for now.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, rose 0.2 percent to C$1.0603 per U.S. dollar at 5 p.m. in Toronto. It touched C$1.0601, the strongest since Nov. 29. One loonie buys 94.31 U.S. cents.

Canada’s dollar fell as low as C$1.4646 per euro, the lowest level since February 2010.

Bonds, Commodities

Canada’s benchmark 10-year government bond gained, with yields falling six basis points, or 0.06 percentage point, to

2.61 percent. The 1.5 percent security maturing in June 2023 added 44 cents to C$90.74.

Futures of crude oil, Canada’s largest export, rose as much as 1.4 percent, touching $98.74 per barrel in New York, the highest since Oct. 28. Copper for delivery in three months added

0.3 percent after jumping 0.7 percent. Gold climbed 1.8 percent to $1,262.18 an ounce. The Standard & Poor’s GSCI Index of 24 commodities rose as much as 0.8 percent.

“In the absence of any other data or speakers, firming commodity prices” are “helping to push it a bit further,” said Don Mikolich, executive director of foreign exchange sales at Canadian Imperial Bank of Commerce, by phone from Toronto.

The cost to insure against declines in the loonie versus its U.S. counterpart touched the lowest in since May 3, with the three-month 25-delta risk-reversal rate dropping to 1.04 percent. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

Central Banks

The loonie weakened past C$1.07 for the first time in three years on Dec. 4, when the Bank of Canada held policy rates at 1 percent and Governor Stephen Poloz said risks associated with elevated debt levels “have not materially changed” while the risks of inflation staying below the 1 percent-to-3 percent target “appear to be greater.”

The central bank’s view contrasted with that of U.S. Federal Reserve policy makers, who said at their October gathering they may start slowing their $85 billion in monthly asset purchases “in coming months.”

Since then, Labor Department figures showed on Dec. 6 that payrolls increased by 203,000 in November, following a revised 200,000 advance the previous month, while the jobless rate fell to 7 percent. Applications for U.S. employment benefits unexpectedly declined to the lowest level in more than two months, another report showed Dec. 5.

The Federal Open Market Committee will probably begin reducing monthly bond purchases at its next meeting Dec. 17-18, according to 34 percent of economists surveyed Dec. 6 by Bloomberg, an increase from 17 percent in a Nov. 8 survey. In November, 53 percent predicted a tapering in March, compared with 40 percent in the latest poll of 35 economists.

‘Broader Downtrend’

The loonie has dropped 3.6 percent over the past three months against nine other developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index, the largest decline after the Norwegian krone’s 4.4 fall. The U.S. dollar has depreciated 1 percent.

The loonie is “retracing a bit of the move,” said Macquarie’s Doyle. “That’s been the pattern over the past year -- recovery, and then resuming the broader downtrend, which we expect to continue over the next 12 months.”

Macquarie’s target for the currency is C$1.11 per U.S. dollar by year-end 2014, “driven by a better economic outlook in the U.S. than Canada,” Doyle said. The median forecast of 36 economists is for the currency to drop to C$1.08 by the end of next year.

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