Canada’s dollar had the biggest weekly gain in 20 months versus its US counterpart as rising optimism that European leaders have staved off a default by Greece fueled investor appetite for higher-yielding assets.
The loonie, as the Canadian currency is nicknamed for the image of the aquatic bird on the C$1 coin, also strengthened as data showing inflation climbed more than forecast spurred bets the central bank will resume raising interest rates. The weekly gain reversed losses for the month and quarter. Canada’s job growth slowed last month, a report next week may show.
“Risk appetite, that’s the main driver of the Canadian dollar,” said Shaun Osborne, chief foreign-exchange strategist at Toronto-Dominion Bank’s TD Securities unit in Toronto. “One of the big uncertainties that has been hanging over the market lately has been a Greek default and a systemic problem in the global banking system and that seems to have been removed now.”
The Canadian currency strengthened 3.1 percent to 95.85 cents per US dollar yesterday in Toronto, from 98.86 cents on June 24. It was the biggest gain since the 3.6 percent advance for the five days ended Oct. 9, 2009. The loonie touched 95.81 cents yesterday, the strongest level since May 11, after depreciating to 99.13 cents on June 27, the weakest in three months. One Canadian dollar buys $1.0433.
Bonds Fall
Government bonds dropped, pushing the yield on the benchmark Canadian 10-year note up 26 basis points, or 0.26 percentage point, to 3.12 percent, from 2.86 percent on June 24. It touched 3.14 percent yesterday, the strongest level since May 20. The price of the 3.25 percent security maturing in June 2021 tumbled C$2.27 to C$101.08.
Canada will auction C$3.5 billion ($3.7 billion) of five- year notes on July 6, according to a statement on a Bank of Canada website. The 2.75 percent securities mature in September 2016.
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The loonie gained 0.5 percent for June and appreciated 0.8 percent for the three months ended June 30, its fourth straight quarterly advance. Until this week, it was headed for monthly and quarterly declines as crude oil, Canada’s biggest export, dropped and stocks slid amid concern Greece’s sovereign-debt crisis would worsen. The currency has risen 4.1 percent in 2011, while being outperformed by 11 of its 16 most-traded peers.
Commodities including oil had five-day gains for the first time in a month as Greek Prime Minister George Papandreou won lawmakers’ approval of an austerity plan needed to keep financial aid flowing to the debt-strapped nation and avert the euro region’s first sovereign-debt default.
Commodities, Stocks
Canada’s dollar rose versus 15 of its 16 most-traded peers this week as crude gained 4.2 percent to $94.94 a barrel in New York and the Thomson Reuters/Jefferies CRB Index of raw materials increased 2.1 percent. Raw materials including oil account for about half of Canada’s export revenue. The Standard & Poor’s 500 Index of stocks climbed 5.6 percent.
The loonie jumped on June 29 the most since December on an intraday basis after Statistics Canada reported the consumer price index increased at an annual pace of 3.7 percent in May, the fastest since 2003, from 3.3 percent the previous month. A Bloomberg News survey had forecast inflation would hold steady.
The currency climbed as much as 1.2 percent as the data prompted traders to ratchet up bets the Bank of Canada will resume raising interest rates. The bank has held the benchmark overnight rate at 1 percent since September after raising it three times last year.
Rate Bets
The yield on December 2011 bankers’ acceptances increased 14 basis points, the biggest weekly gain since February, to 1.5 percent. It had touched 1.36 percent June 24, the lowest closing since the contracts started trading in December 2008. The yield on so-called Baxes averages about 18 basis points above the central bank’s overnight target, Bloomberg data since 1992 show.
The CPI figure “has us believe that we will be seeing a rate increase this calendar year,” said C.J. Gavsie, managing director for foreign-exchange trading at Bank of Montreal’s BMO Capital Markets unit in Toronto. “It certainly helped market participants believe something will be happening much sooner in Canada than in the U.S.”
Policy makers will raise the overnight rate to 1.25 percent by the end of September and 1.5 percent by year-end, according to the median projection in a Bloomberg survey of economists.
The Federal Reserve will keep its benchmark rate at zero to 0.25 percent, where it’s been since December 2008, until the second quarter of 2012, the median forecast in another Bloomberg survey shows.
Advance May Continue
The Canadian interest-rate speculation may help the loonie continue its advance in the next few weeks, Gavsie said. The currency has weakened 1.7 percent this year versus those of nine other developed-nation currencies tracked by the Bloomberg Correlation-Weighted Currency Indexes. The greenback has lost 6 percent.
Canada’s dollar rose this week even as Statistics Canada data showed gross domestic product stalled in April after Japan’s record earthquake disrupted supply lines for Canadian automobile production. GDP gained 0.3 percent in March. A Bloomberg survey forecast a 0.1 percent contraction for April.
Employment growth slowed to a net 12,500 jobs in June from 22,300 in May, according to a Bloomberg survey before the statistics agency reports the data on July 8. The unemployment rate held at 7.4 percent, economists said.
Currency, bond and stock markets in Canada were closed yesterday for the Canada Day holiday.