Canada's Dollar Advances to 30-Year High on Outlook for Oil

Canada's Dollar Advances to 30-Year High on Outlook for Oil

http://www.bloomberg.com/apps/news?pid=20601082&sid=aD9FWTJfikQQ&refer=canada

By Haris Anwar

July 16 (Bloomberg) -- The Canadian dollar surged to the strongest in 30 years as the price of crude oil traded near an 11-month high, boosting the outlook for the nation's export revenue.

The currency extended its gains after its climb above C$1.0440 triggered pre-set buy orders, traders said. Commodities account for about half of Canada's exports.

``It's all one-way traffic,'' said Steve Butler, director of foreign exchange trading at Scotia Capital Inc. in Toronto. ``The currency's move above C$1.0440 attracted new buyers.''

The Canadian dollar strengthened to 0.4 percent to 95.86 U.S. cents at 4:13 p.m. in Toronto, after reaching 96 cents, the highest since February 1977. One U.S. dollar buys C$1.0432. The Canadian dollar eclipsed the previous 30-year high of 95.74 U.S. cents, reached on July 9.

The currency briefly pared some gains after a report showed factory shipments fell a second straight month in May. Shipments fell 0.1 percent to C$49.7 billion ($47.5 billion), after a 0.7 percent drop in April, Statistics Canada said today in Ottawa.

``With rate spreads continuing to narrow and commodities pushing higher, the picture remains very constructive for the Canadian dollar,'' said Maria Jones, a currency strategist at TD Securities in Toronto.

Narrowing Gap

The Bank of Canada on July 10 raised the benchmark lending rate a quarter-percentage point to 4.50 percent, the closest it's been to the U.S. benchmark rate since June last year. The U.S. key rate is 5.25 percent.

Jones said the currency's gains may be limited after the central bank said ``modest'' rate increases may be required in the future.

``Further increases beyond a likely hike in September will be largely data dependent,'' she said.

Before the July 10 rate decision, investors were expecting a series of interest-rate increases by the Bank of Canada. Canada's central bank raised rates this month for the first time since May last year as inflation surpassed its 2 percent target.

Matthew Strauss, a senior currency strategist at RBC Capital Markets in Toronto, said there is room for further appreciation in the Canadian dollar after the July 18 inflation report.

``Investors haven't fully discounted a rate hike in September,'' Strauss said. ``As we see core inflation moving away from the Bank of Canada's target, people will price in more rate increases and that'll help the Canadian dollar.''

Canadian inflation, excluding volatile items such as energy, probably rose to 2.6 percent in June from a year ago, compared with a 2.2 percent gain the previous month, according to the median forecast in a Bloomberg News survey.

The yield on Canada's 10-year benchmark 10-year bond fell 4 basis points, or 0.04 percentage point, to 4.59 percent. The price of the 4 percent security maturing in June 2016 rose 36 cents to C$95.73. Bond yields move inversely to prices.