April 14 (Bloomberg) -- Canada’s dollar gained to the strongest level in 22 months versus its U.S. counterpart as a rise in global stocks and commodities burnished the appeal of currencies tied to growth.
The Canadian dollar strengthened past parity with the greenback for the first time this week. It has gained 5.6 percent this year for the second-best performance versus the U.S. dollar among its 16 most-traded peers, after Mexico’s peso. An accelerating economic recovery and speculation the Bank of Canada
will raise borrowing costs before the Federal Reserve have fueled its rise.
“People are adding to their long Canadian dollar positions,” said Firas Askari, head currency trader in Toronto at Bank of Montreal, Canada’s fourth-largest lender. “It’s a continued good-news Canadian dollar story.” A long position is a bet a currency will gain.
Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, appreciated 0.3 percent to 99.77 Canadian cents per U.S. dollar at 1:15 p.m. in Toronto, from C$1.0011 yesterday. It touched 99.54 cents, the strongest level since June 2, 2008. One Canadian dollar buys $1.0023. Government bonds fell.
The Standard & Poor’s 500 Index rose 0.8 percent, and the MSCI World Index, a measure of stocks in 23 developed markets, gained 1 percent.
Crude Climbs
Crude oil for May delivery increased as much as 2.8 percent to $86.39 a barrel on the New York Mercantile Exchange, snapping a five-day losing streak, after a U.S. government report showed an unexpected decline in inventories. The correlation between crude, Canada’s biggest export, and the loonie is about 84 percent, according to Bloomberg data. A correlation of 100 percent would indicate they move in lock step.
The central bank meets April 20 to decide on interest rates. Governor Mark Carney has pledged to leave the key rate at a record low 0.25 percent through June, depending on inflation.
Six-month overnight index swap rates, a measure of the average overnight interest rate expected by investors during that time, touched 0.576 percent today, the highest level since February 2009, from 0.5525 yesterday. The rise indicates traders are raising bets on borrowing-cost increases.
There’s been a “spike in interest” in buying the U.S. dollar versus the Canadian among corporate accounts that use the greenback to hedge, according to John Curran, a senior vice president at CanadianForex Ltd.
“If you need to buy dollar-Canada, how can you not be happy with the Canadian dollar above par?” Curran said in a phone interview from Toronto, referring to the U.S. dollar- Canadian dollar currency pair.
Sales Growth
Canada’s dollar has averaged about C$1.31 per U.S. dollar over the past 20 years.
The Bank of Canada’s quarterly Business Outlook Survey, released April 12, showed 64 percent of executives said sales growth will quicken over the next year, while another 20 percent expect sales to slow.
Forty-five percent of companies said they will charge more for their products, and 17 percent predicted slower price gains. The so-called balance of opinion was 28 percent, the highest level since the question was first asked in 1998.
The central bank today sold C$3.5 billion ($3.5 billion) in 3 percent securities maturing in December 2015, drawing an average yield of 3.236 percent. The government received bids of C$8.4 billion, for a bid-to-cover ratio of 2.4.
The previous auction of five-year bonds on March 3 had an average yield of 2.745 percent with a bid-to-cover ratio of 2.6.
The yield on Canada’s benchmark 10-year bond increased two basis points today, or 0.02 percentage point, to 3.70 percent. It touched 3.72 percent, the highest level since November 2008. The price of the 3.75 percent security due in June 2019 dropped 15 cents to C$100.39.
The yield on the two-year note touched 1.95 percent, also the most since November 2008.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
Last Updated: April 14, 2010 13:19 EDT
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