Canada’s Dollar Advances

Canada's Dollar Advances From
7-Week Low as Risk Appetite Gains

Source: http://www.bloomberg.com/apps

By Daniel Kruger and Chris Fournier

-- Canada's dollar rose from near a seven-week low as advances

by commodities and global stocks boosted investor demand

for higher-yielding assets such as commodity-linked currencies.

The Canadian dollar, known as the loonie, headed for its

first five-day gain in six weeks as a report said growth

in Canadian housing starts exceeded forecasts.

The nation's economic slowdown is likely to be among the

shallowest, and its recovery among the strongest, amid

developed countries, an International Monetary Fund

report yesterday showed.

"The story here is very much a rebound in commodity prices,

which always tends to help the Canadian dollar,"

said Michael Gregory, a senior economist at BMO Capital Markets

in Toronto, a unit of the nation's fourth-largest bank.

"A lot of the Canadian economic numbers have come out

better than expected.

Things are depressed, but have turned around nicely.

The fundamental support for the currency is there."

Canada's currency strengthened 0.6 percent to C$1.1602

per U.S. dollar at 2:27 p.m. in Toronto, from C$1.1675 yesterday,

when it touched C$1.1725, the weakest level since May 18.

It gained 0.1 percent so far this week.

One Canadian dollar buys 86.19 U.S. cents.

Copper rose for the first time in five days on an increase

in Chinese car sales and on speculation the economy

will expand.

Copper for September delivery gained 3.6 percent to $2.237 a pound

on the New York Mercantile Exchange. Gold rose

from a two- month low.

Raw materials including copper and gold account

for more than half of Canada's export revenue.

Aussie, Kiwi

Crude oil for August delivery increased as much as

2.5 percent to $61.62 a barrel on the New York

Mercantile Exchange before fluctuating between gains

and losses. Crude is Canada's biggest export.

The MSCI World Index, a gauge of stocks in 23 developed nations,

rose 1 percent, snapping a five-day losing streak, and

the Standard & Poor's 500 Index was up 0.8 percent.

The loonie gained 5 percent so far this year against

the U.S. currency.

It lagged behind the dollars of two other commodity-producing

countries, Australia and New Zealand.

The Aussie gained 12 percent against the greenback this year,

and the kiwi advanced 9 percent.

"Canada's the next weakest-currency out of the whole bunch,

" said Eric Lascelles, chief economist and strategist at

TD Securities Inc. in Toronto, a unit of Canada's

second- biggest bank.

"If you believe the carry trade is still a dominant factor

in currencies, that could explain it."

In the carry trade, investors borrow funds in a country

where interest rates are lower and use the proceeds

to buy assets in a country with higher rates,

pocketing the difference.

Australia's benchmark rate is 3 percent and New Zealand's

is 2.5 percent, compared with 0.25 percent in Canada.

Risk Appetite

Investor appetite for risk was bolstered as the yen retreated

from a four-month high against the U.S. dollar.

Japanese Vice Finance Minister Kazuyuki Sugimoto

said at a Tokyo press conference a stronger yen may

squeeze exporter profits and have

negative effects on the country's economy.

"There are a number of issues at hand contributing to

the correction on risk,"

said Jack Spitz, managing director of foreign exchange

at National Bank of Canada in Toronto.

"That's all contributing to a reversal of the landscape seen yesterday."

Canadian government bonds declined.

The yield on the 10- year note increased three basis points,

or 0.03 percentage point, to 3.30 percent.

It touched 3.23 percent yesterday, the lowest since May 21.

The price of the 3.75 percent note maturing in

June 2019 fell 24 cents to C$103.76.

Housing Starts

Housing starts in Canada rose in June on construction of

both single- and multiple-unit homes,

the Canada Mortgage and Housing Corp. said today from Ottawa.

The total of 140,700 units on an annualized basis compared

with a revised 130,300 in May.

Economists expected the pace of starts would be 130,000 units,

according to the median of 17 responses in a Bloomberg News survey.

Canadian business spending increased more than

expected in June, the Ivey purchasing managers' index

showed on July 7.

The reading rose to 58.2 from 48.4 in May.

A reading of greater than 50 indicates that

purchases increased.

Economists expected the index would rise to 50.3,

based on the median of 12 estimates in a Bloomberg survey.

Statistics Canada is likely to report tomorrow that

a net 35,000 people lost their jobs in June, according to

the median forecast in a Bloomberg News survey of 18 economists.

The unemployment rate is forecast to increase to 8.7 percent,

from 8.4 percent.

The economy shed 41,800 jobs in May.

To contact the reporters on this story:

Daniel Kruger in New York at dkruger1@bloomberg.net;

Chris Fournier in Montreal at cfournier3@bloomberg.net

Source: http://www.bloomberg.com/apps/

By Daniel Kruger and Chris Fournier

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