Canadian Dollar Appreciates as Crude Oil Price Increases to 30-Month High

Source: http://www.bloomberg.com/news/2011-04-07/canadian-dollar-strengthens-as-rising-crude-oil-and-gold-fuel-added-demand.html

By Alexandra Harris – Apr 8, 2011 5:07 AM GMT+0800 Thu Apr 07 21:07:16 GMT 2011

Canada’s dollar rose to almost the strongest level in more than three years against the U.S. dollar as crude oil, the nation’s largest export, traded at a 30-month high, adding demand for commodity-linked currencies.

The loonie, as the currency is nicknamed, earlier pared gains against the greenback after reports of an earthquake off Japan’s coast damped risk appetite. Crude oil exceeded $110 a barrel as a fire burned at Libya’s Sarir field, bolstering concern that unrest in North Africa and the Middle East will spread. Canadian building permits rose more than forecast in February before a report tomorrow forecast to show a March gain of 28,000 jobs.

“The Canadian dollar upward trend remains,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage. “There’s strong underlying support there, rather than just speculative positioning, which suggests sustained strengthening.”

The Canadian currency rose 0.3 percent to 95.79 cents per U.S. dollar at 5 p.m. in Toronto, from 96.08 cents yesterday. It appreciated as much as 0.4 percent to 95.71 cents. The currency touched 95.69 cents yesterday, the strongest since November 2007. One Canadian dollar buys $1.0436.

The yen strengthened against most of its major peers including Canada’s dollar after a 7.1 magnitude earthquake hit 215 miles northeast of Tokyo.

ECB Moves

The currency pared gains against the greenback earlier as European Central Bank policy makers raised the benchmark interest rate to 1.25 percent from a record low 1 percent.

“The Canadian dollar is generally reflecting a bit of euro profit taking after the European Central Bank, which has given the U.S. dollar a bit of a lift,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank.

Crude oil for May delivery rose 1.4 percent to $110.33 a barrel in New York. It touched $110.44 a barrel, the highest since September 2008. Gold for June delivery reached a record $1,468.80 an ounce earlier.

Raw materials, including oil and gold, account for about half of Canada’s export revenue.

“Commodities are still great support for the Canadian dollar with oil and gold up,” said Steve Butler, managing director of foreign-exchange trading in Toronto at Bank of Nova Scotia’s Scotia Capital unit. “All things point to the Canadian dollar getting stronger.”

Building Trend

Canadian building permits rose in February almost twice as fast as the most optimistic forecast as a gain in nonresidential work exceeded a drop in housing.

The total value of permits issued by municipalities rose 9.9 percent to C$5.81 billion ($6.06 billion), the fastest pace in five months, according to Ottawa-based Statistics Canada. The rise was almost double the highest of the 13 forecasts in a Bloomberg News survey, which had a median estimate of a 1.3 percent increase.

U.S. initial jobless benefit claims fell 10,000 last week to 382,000, the fewest since Feb. 26, Labor Department figures showed today.

Canada’s trade ties to the U.S. have fallen to the lowest since at least 1986, extending a slide between the world’s largest commercial partners, Statistics Canada said.

Trade Patterns

About 62.5 percent of Canada’s foreign merchandise trade was with the U.S. in 2010, down from 76.3 percent in 2001, the Ottawa-based agency said in an annual review report today. Canada’s share of trade involved China tripled to 3.3 percent from 1.1 percent during that time, while trade with the U.K. rose to 4.1 percent from 1.3 percent.

Canadian Prime Minister Stephen Harper’s election campaign may get a boost from an employment report that is forecast to show a sixth straight monthly gain, bolstering his argument his Conservative Party is best at managing the economic recovery.

Statistics Canada is likely to report a job gain of 28,000 people for March, and a decline in the unemployment rate to 7.7 percent from 7.8 percent, according to the median of 25 estimates in a Bloomberg News Survey. The Ottawa-based agency’s jobs report, the only one scheduled to be published before the May 2 election, is due tomorrow at 7 a.m. Toronto time.

Canadian government bonds fell, pushing the yield on the benchmark 10-year up two basis points, 0.02 percentage point, to 3.44 percent. The price of the 3.5 percent security maturing in June 2020 dropped 17 cents to C$100.51.

To contact the reporter on this story: Alexandra Harris in New York at [email protected]

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