Tuesday, February 9, 2010

Canada’s Dollar Rises Most in Month on Prospect of Greece Aid

By Allison Bennett and Chris Fournier

Feb. 9 (Bloomberg) -- Canada’s dollar advanced the most in a month versus its U.S. counterpart as the European Union held out the prospect of aiding Greece, spurring appetite for currencies tied to economic growth.

“Clearly it’s having an impact on the euro and will cause some of the U.S. dollar longs to run for cover,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “That in itself has the potential to drive some left-sided price action in USD-CAD.” A long is a bet a currency will appreciate.

Government 10-year bond yields rose from a one-week low on reduced demand for relative safety as stocks and crude oil rallied. The loonie, as the currency is known for the image of the aquatic bird on the C$1 coin, trailed the dollars of Australia and New Zealand, rival exporters of raw materials.

The Canadian currency climbed 0.8 percent to C$1.0677 per U.S. dollar at 4:03 p.m. in Toronto, from C$1.0758 yesterday, the weakest close since Nov. 2. It appreciated earlier as much as 1.1 percent, the biggest intraday increase since Jan. 4. One Canadian dollar buys 93.65 U.S. cents.

The currency advanced as Olli Rehn, who takes over as European economic affairs commissioner tomorrow, said in an interview in Strasbourg, France, today that Greece may get support “in the broad sense of the word” in return for progress by the nation in reducing its budget deficit.

Outlook for Bailout

“The FX markets are trading as if they believe that some sort of bailout will be announced over the near term,” said George Davis, chief technical analyst at Royal Bank of Canada in Toronto, in an e-mailed response to a reporter’s query. “This is limiting U.S. dollar gains across the board for the time being.”

Germany said no decision has been made on financial assistance to Greece. A government spokesman, Ulrich Wilhelm, rejected in a prepared statement reports that a decision has “virtually been taken.”

Crude oil for March delivery rose as much as 3.1 percent to $74.15 a barrel on the New York Mercantile Exchange. The Standard & Poor’s 500 Index climbed 1.3 percent. The S&P/TSX Composite Index rose 1.5 percent.

“No more slippage in commodities and a boost to equities should see the loonie perform better short-term,” said Dean Popplewell, an analyst in Toronto at the online currency-trading firm Oanda Corp. “That’s probably a good opportunity to short it again.” Shorting a currency means betting it will fall.

The Canadian dollar tends to track swings in stocks and commodity prices. The 30-day correlation for the loonie and crude oil is 0.58, while the figure for the S&P 500 Index is 0.78. Readings of 1 would indicate they move in lockstep.

Loonie Versus Aussie

The Canadian currency decreased 0.8 percent to 1.0667 Australian dollars and lost 0.6 percent to 1.3525 New Zealand dollars.

Canada’s government bonds fell, pushing the 10-year security’s yield up three basis points, or 0.03 percentage points, to 3.38 percent. The price of the 3.75 percent security maturing in June 2019 decreased 28 cents to C$102.90. The yield earlier touched 3.34 percent, the lowest level since Jan. 29.

The nation’s government debt has returned 1.7 percent this year, according to Bank of America Merrill Lynch’s Canadian Governments Index.

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