Canadian Currency Gains as Traders Speculate Losses Overdone
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By Chris Fournier
Dec. 9 (Bloomberg) -- Canada’s dollar strengthened against its U.S. counterpart amid speculation that yesterday’s decline to the lowest level in almost two weeks went too far.
“The Canadian dollar was oversold yesterday,” said Firas Askari, head currency trader in Toronto at Bank of Montreal, Canada’s fourth-largest lender. “This is a bit of a catch-up.”
Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, appreciated 0.9 percent to C$1.0548 per U.S. dollar at 4:43 p.m. in Toronto from C$1.0638 yesterday, when it slid as much as 1.5 percent to touch C$1.0671, the weakest level since Nov. 27. One Canadian dollar buys 94.81 U.S. cents.
The loonie earlier was little changed as U.S. stocks declined and the greenback strengthened after Standard & Poor’s cut the credit-rating outlook for Spain. S&P put Greece’s debt on watch for a downgrade two days ago. The moves sparked concern defaults will spread, and the U.S. dollar gained this week against all but three of its 16 most-traded counterparts tracked by Bloomberg as investors sought a haven. Only the yen and the dollars of New Zealand and Canada rose more.
“We’ll continue to oscillate with the broader dollar,” said Shane Enright, a currency strategist in Toronto at Canadian Imperial Bank of Commerce. “We’re stuck in the middle of a pretty broad range.”
The Canadian currency is trading between its 100-day moving average of C$1.07 and C$1.04, a “very solid” level at the stronger end of the range, Enright said. He attributed today’s movement to routine currency flows.
Canada’s dollar will strengthen to C$1.03 by the end of the first quarter, according to the median forecast of 37 economists and analysts surveyed by Bloomberg News.
‘Stronger’ U.S. Dollar
“I think we’re going to see the U.S. dollar go stronger into year-end and early next year,” said John Curran, a Toronto-based senior vice president at CanadianForex Ltd., an online foreign-exchange dealer. “You’re getting a few things out that are unsettling to the markets, such as the Dubai issue, then suddenly you have Greece, now you’ve got Spain.”
On Nov. 25, Dubai said it was seeking a “standstill” agreement on the state-related holding company Dubai World’s debt. Moody’s Investors Service yesterday downgraded six companies controlled by Dubai’s government, including the port operator DP World Ltd.
Depreciation by the Canadian currency through its 100-day moving average of C$1.07 could precipitate a run to C$1.12 within a month, Curran said.
Bond Auction
Canada auctioned C$3.2 billion ($3 billion) of three-year notes today, drawing an average yield of 1.937 percent and receiving bids of C$7.47 billion for the 1.75 percent notes maturing in March 2013, according to a statement on the Bank of Canada’s Web site.
The government’s benchmark three-year note was unchanged, yielding 1.67 percent. The 10-year Canadian security fell, pushing the yield up two basis points, or 0.02 percentage point, to 3.31 percent. The price of the 3.75 percent note due in June 2019 dropped 20 cents to C$103.54.
The Standard & Poor’s 500 Index, a benchmark of U.S. stocks, closed 0.4 percent higher after falling earlier as much as 0.6 percent.
Crude oil for January delivery dropped 2.7 percent to $70.69 a barrel on the New York Mercantile Exchange after a government report showed U.S. fuel inventories climbed as refineries bolstered operating rates. Crude earlier rose 1.7 percent before tumbling as much as 3.4 percent to $70.12, a two- month low.
Raw materials generate more than half of Canada’s export revenue, and crude oil is the nation’s biggest export.
‘Volatile and Tentative’
The U.S. dollar ended the day falling against 11 of the 16 most-traded currencies.
“Markets seem quite volatile and tentative,” said Sacha Tihanyi, a currency strategist in Toronto at Bank of Nova Scotia, Canada’s third-largest lender.
Canada’s trade deficit narrowed in October to C$700 million, compared with a C$927 million shortfall in September, Statistics Canada is likely to report tomorrow, according to the median forecast of 20 economists surveyed by Bloomberg. The figures are due at 8:30 a.m. in Ottawa.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
Last Updated: December 9, 2009 16:47 EST
