Canada Dollar Fluctuates on Japan’s Downgrade, EU Summit
Posted in Beavers by: adminCanada’s dollar rose against most of
its major counterparts before European Union leaders meet
tomorrow in Brussels to address the region’s debt crisis.
The currency, nicknamed the loonie for the image of the
bird on the C$1 coin, extended its advance against the euro as
U.S. stocks erased gains. It fell versus the dollar. European
officials will do “everything necessary” to keep Greece in the
17-nation euro and focus on steps to aid economic expansion,
German Finance Minister Wolfgang Schaeuble said yesterday.
“The market is playing it very, very tight ahead of what
will actually transpire, what will actually be said at the
European meetings tomorrow,” said Dean Popplewell, chief
currency strategist in Toronto at the online currency-trading
firm Oanda Corp. “The market was caught quite a bit short the
loonie believing that they would see more of a follow-through.”
Short positions are bets an asset will fall in value.
Canada’s dollar appreciated 0.6 percent to C$1.2963 per
euro at 3:56 p.m. in Toronto, gaining for a second day. It
dropped versus the greenback, losing 0.5 percent to C$1.0224 per
U.S. dollar after gaining as much as 0.2 percent earlier. The
loonie touched C$1.0247 per dollar yesterday, the weakest level
since Jan. 16. One Canadian dollar purchases 97.81 U.S. cents.
The Standard Poor’s 500 (SPX) Index was down 0.2 percent after
rallying as much as 1 percent. The MSCI World Index of stocks
rose 0.4 percent after gaining as much as 1.3 percent.
The loonie was supported after the China Securities Journal
reported that the nation plans to speed up approval of
infrastructure projects and allocate construction funding faster
to improve economic growth.
Bonds Fall
Canadian government bonds fell, pushing the yield on
benchmark 10-year notes up three basis points, or 0.03
percentage point, to 1.91 percent. Five-year yields rose two
basis points to 1.43 percent.
The greenback rose against all of its 16 most-traded peers
except the South Korean won and Taiwanese dollar as stocks
reversed their rally. New Zealand’s dollar, nicknamed the kiwi,
was among the biggest losers among the most-traded currencies
tracked by Bloomberg. The loonie climbed 1.1 percent to 77.03
cents per kiwi. The yen pared earlier losses, trading at 78.19
to the loonie, after falling earlier to 77.89.
The Canadian currency weakened earlier after Fitch Ratings
lowered Japan’s sovereign-credit rating to A+, the fifth-highest
ranking, citing limited progress by the government in tackling
the world’s biggest public debt burden. Canada holds a top AAA
rating from all three major credit-rating companies.
‘Was Not Helped’
Risk appetite “was not helped by the downgrade of Japan,
which caused a spillover from dollar-yen strength to more
general dollar strength,” said Adam Cole, global head of
foreign-exchange strategy at Royal Bank of Canada’s RBC Capital
Markets unit in London.
A government report tomorrow will show Canadian retail
sales rose 0.3 percent in March after declining 0.2 percent in
the previous month, according to the median estimate of
economists in a Bloomberg News survey.
Bank of Canada Governor Mark Carney said last month
interest-rate increases may be necessary as growth and inflation
outpace his earlier projections, and as slack disappears from
the economy. Policy makers have kept the benchmark rate at 1
percent since September 2010.
Odds of a rate boost by year-end were 41 percent today,
according to Bloomberg calculations based on trading in
overnight index swaps.
North American Prospects
Investors should buy the Canadian dollar, Mexican peso and
U.S. dollar in favor of currencies of nations that export
heavily to China, such as Australia’s dollar and the Korean won,
because of North America’s prospects for growth, Deutsche Bank
AG’s Alan Ruskin recommended.
“The North American markets are probably a better place to
capture stronger relative growth,” Ruskin, global head of
Group-of-10 foreign-exchange strategy in New York, said in a
radio interview on “Bloomberg Surveillance” with Tom Keene and
Ken Prewitt. “There’s a dichotomy between a more resilient
North America and some waning growth in the BRIC countries. All
of Brazil, China, India are tending to see growth weaken.”
The Organization for Economic Cooperation and Development
increased its economic growth forecasts for the U.S., Canada’s
biggest trade partner, to 2.4 percent this year and 2.6 percent
next. In November, it projected 2 percent and 2.5 percent.
The OECD, in a semiannual report, said Europe’s debt crisis
risks spiraling and seriously damaging the world economy. Gross
domestic product in the 17-nation euro union will shrink 1
percent this year instead of growing the 0.2 percent estimated
earlier, the organization said.
Developed-Nation Peers
The loonie advanced 1 percent over the past month against
nine developed-nation peers monitored by Bloomberg Correlation-
Weighted Indexes. The U.S. dollar strengthened 4.5 percent, and
the yen climbed 6.8 percent. The euro weakened 0.4 percent.
JPMorgan Chase Co. revised its forecast for Canada’s
dollar to C$1.04 per U.S. dollar by mid-year, compared with a 98
Canadian-cents estimate as of May 11, the firm said today in a
report.
The loonie will strengthen to parity with the U.S. dollar
by the end of June and gain to 99 Canadian cents by year-end,
according to the median forecast of 40 currency strategists
surveyed by Bloomberg News.
To contact the reporter on this story:
Catarina Saraiva in New York at
asaraiva5@bloomberg.net
To contact the editor responsible for this story:
Dave Liedtka at
dliedtka@bloomberg.net
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Article source: http://www.bloomberg.com/news/2012-05-22/canada-dollar-fluctuates-on-japan-s-downgrade-eu-summit.html