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Canada's Dollar Reaches Two-Week High Amid Bets on Fed - (Bloomberg)

Posted by Chris Advincula on Oct 18, 2013 7:18:00 AM

The Canadian dollar strengthened to a two-week high on speculation the Federal Reserve will maintain stimulus measures to counteract disruption in economic growth triggered by the U.S. government shutdown.

The currency approached its 200-day moving average against the greenback, a signal to some traders that there may be momentum for further gains. It advanced for a second day as President Barack Obama signed legislation that extended funding and debt-ceiling deadlines into 2014 and reopened the government, ending a 16-day standoff between Republican and Democratic lawmakers.

“There’s a base of a bullish channel that’s guided this whole move up,” Matthew Perrier, director of foreign exchange at Bank of Montreal, said by phone from Toronto. “If the Canadian dollar can continue on its path and close above the 200-day moving average, that would certainly set the stage for potential continuation of the Canadian rally and bring parity back into the market’s view.”

The loonie, as Canada’s dollar is known for the image of the waterfowl on the C$1 coin, gained 0.4 percent to C$1.0289 per U.S. dollar at 5 p.m. in Toronto. It touched C$1.0281, the strongest level since Sept. 30. The 200-day moving average, now C$1.0256, was last breached on Sept. 19. One loonie buys 97.19 U.S. cents. The currencies last traded on a one-for-one basis in February.

Price Swings

Implied volatility for one-month options on Canada’s dollar versus its U.S. counterpart reached 5.4 percent, the least since May. The measure is used to set option prices and gauge the expected pace of currency swings. The average for this year is 6.6 percent.

The U.S. central bank purchases $85 billion of bonds a month to put pressure on long-term borrowing rates and spur growth. Policy makers unexpectedly refrained from reducing the purchases last month, saying they wanted more evidence of an economic recovery.

“The Fed is moving slowly toward tapering, and until we get clarity on what the message is from the next big data point, we’ll probably stay in these ranges,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit in Toronto, said by phone.

Futures on crude oil, the nation’s largest export, fell 1.6 percent to $100.70 per barrel in New York, while the Standard & Poor’s 500 Index of U.S. stocks added 0.7 percent.

Canadian government bonds rose, pushing the yield on benchmark 10-year debt down five basis points, or 0.05 percentage point, to 2.56 percent. The 1.5 percent security maturing in June 2023 gained 44 cents to C$91.03.

CPI Data

Canada’s inflation rate is forecast to have slowed, a report from Statistics Canada will show tomorrow at 8:30 a.m. in Ottawa. Consumer price increased 1 percent in September compared with a year ago, according to a Bloomberg News survey of economists. In August the index showed a 1.1 percent increase.

The rate is at the bottom of the Bank of Canada’s 1 to 3 percent target band, muting calls for an end to the longest pause in interest rates since the 1950s. Central bank policy makers will hold their next meeting on Oct. 23.

Purchases of Canadian securities by foreigners slowed in August as investors sold government bonds. While foreigners bought a net C$2.03 billion of bonds, they sold C$1.22 billion in government debt, including C$883 million in federal issues. Foreign investors sold a net C$2.4 billion of Canadian government bonds between January and August, Statistics Canada said, compared with net purchases of C$28.7 billion in the same period a year earlier.

Total purchases so far this year have slowed to C$24 billion, less than half of the C$51.2 billion total for the same period in 2012. 

Harper’s Plans

Prime Minister Stephen Harper said yesterday he plans to legislate an end to budget deficits and stimulate economic growth through trade and resource development in an agenda he’s counting on to secure his re-election in 2015.

Harper, who won his first majority mandate in 2011, said he will introduce laws to require balanced budgets in “normal economic times, and concrete timelines for returning to balance in the event of an economic crisis.” The agenda, which also highlighted plans to complete a European Union trade deal, was delivered in Ottawa in a Speech from the Throne that marks the ceremonial opening of a new legislative session.

The Canadian dollar has fallen 2.4 percent this year against nine developed nation currencies tracked by the Bloomberg Correlation-Weighted Index. The Australian dollar is down 6.5 percent, and the U.S. dollar has added 1.7 percent. 

 

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