Canada’s currency, known as the loonie, depreciated against the euro yesterday after European leaders endorsed a plan to assist Greece through a mix of International Monetary Fund and bilateral loans. Bank of Canada Governor Mark Carney signaled the central bank may raise interest rates as soon as June. The nation’s economy grew 0.5 percent in January, according to the median estimate in a Bloomberg survey before a March 31 report.
“The race to parity has taken a pause in the Canadian dollar,” said Kathy Lien, director of currency research at the online currency trader GFT Forex in New York. “Whenever we see an improvement in risk appetite it seems to be more Canada- positive, but this week we didn’t see it participating.”
The currency declined 0.9 percent to C$1.0266 per U.S. dollar yesterday in Toronto, from C$1.0173 on March 19. One Canadian dollar purchases 97.41 U.S. cents. For the week, the Canadian currency fell against 9 of its 16 most-traded counterparts.
The loonie headed for a quarterly gain of 2.6, the second- best performance against the greenback after the Mexican peso.
Crude oil, the nation’s biggest export, fell for a third week, losing 0.7 percent.
‘Expressly Conditional’
The currency reached C$1.0062 on March 19, the strongest level since July 23, 2008, after a report showed consumer prices gained more than forecast in February, driving speculation the Bank of Canada will raise benchmark interest rates before the U.S. Federal Reserve.
The loonie gained March 25 as Carney said in a speech in Ottawa that the bank’s pledge to keep borrowing costs at a record low 0.25 percent through June was “expressly conditional” on the outlook for prices, strengthening earlier language.
The speech “helped firm sentiment that had already been building,” said David Watt, senior currency strategist in Toronto at Royal Bank of Canada. “He was actually not beating back expectations of possibly an early move. He really didn’t express discomfort with the Canadian dollar other than what they’d basically said before and here we are flirting with parity.”
Fiscal Crisis
Canada’s economy expanded at a rate of 0.5 percent in January, a Statistics Canada report is expected to show on Tuesday March 30, according the estimate of 18 economists surveyed by Bloomberg. The nation’s economy grew at a 5 percent annualized rate in the fourth quarter, faster than predicted by the Bank of Canada and the fastest pace since the third quarter of 2000.
Government bonds fell, pushing the yield on Canada’s two- year benchmark up five basis points to 1.69 percent. The 10-year security yield jumped eight basis points to 3.56 percent.
The Canadian dollar has gained 9.6 percent against the euro this year amid concern that Greece’s fiscal crisis will spread to other European nations, damping the region’s growth.
The euro yesterday rose from a more than two-year low against the loonie after European Central Bank President Jean- Claude Trichet blunted criticism of IMF involvement in a rescue plan for Greece, whose budget deficit is more than four times the EU’s limit.
Fitch Ratings cut Portugal’s credit grade on March 24, renewing concern Greece’s fiscal crisis may spread to other European nations.
Five-Year Plan
“Looking at how well Canada has done on a relative basis, it’s because it’s in a much better fiscal situation,” said Sacha Tihanyi, a currency strategist in Toronto at Bank of Nova Scotia.
Canadian Finance Minister Jim Flaherty on March 4 announced a five-year spending plan with cuts to defense, international aid and government operations in a bid to be the first Group of Seven country to erase its deficit after the global financial crisis. He predicted a shortfall narrowing to C$49.2 billion ($47.9 billion) in the 2010-11 fiscal year, down from a record C$53.8 billion last year.
All G-7 countries but Canada and Germany will have debt-to- GDP ratios near or exceeding 100 percent by 2014, John Lipsky, first deputy managing director of the IMF, said on March 21.
Speculative net long positions -- bets that the Canadian currency will rise versus bets that it will fall -- increased to 73,027 contacts on March 23, the most since October 2007, compared with net longs of 69,640 contacts a week earlier, according to data from the Commodity Futures Trading Commission in Washington.
