Canadian dollar nears parity after BoC, Flaherty comments - Yahoo! Canada News

Canadian dollar nears parity after BoC, Flaherty comments - Yahoo! Canada News

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Oil Breaks Out: Is It Sustainable?

From BCA...Oil or couple of currencies; NOK and or CAD

Canadian Dollar Strengthens Amid Rally in Commodity Currencies

May 23 (Bloomberg) -- Canada’s dollar posted the biggest weekly gain since October as crude oil climbed and investors bought the currencies most likely to benefit from a rebound in global economic growth, shunning the U.S. greenback.

The Canadian dollar rose 5.2 percent as currencies of countries that produce raw materials surged. The ICE’s U.S. Dollar Index dropped to the lowest in five months on speculation the creditworthiness of the world’s largest economy is deteriorating. Crude rose above $62 a barrel.

“The Canadian dollar’s had a nice move,” said Michael Leavitt, a Montreal-based institutional-derivatives broker at MF Global Canada Co. “This breakout has moved some people off the sidelines. Crude has had a lot to do with it.” He predicted the currency may strengthen to C$1.0825.

Canada’s dollar, known as the loonie, ended the week at C$1.1195, from C$1.1776 on May 15. It touched C$1.1188 yesterday, the strongest since Oct. 9. One Canadian dollar buys 89.33 U.S. cents.

Crude oil for July delivery rose 9.5 percent to $61.67 a barrel on the New York Mercantile Exchange after touching $62.26. Prices are up 38 percent this year. Crude, natural gas and other energy products accounted for 25 percent of Canada’s export revenue last year.

The loonie climbed the most over the past five days since the week ended Oct. 31, when it gained 5.4 percent. After reaching a four-year low on March 9, it advanced 16 percent as investors stepped out of havens to seek higher-yielding assets such as stocks and commodity-linked currencies amid signs the global economic slump is moderating.

‘Far-Reaching Implications’

The U.S. dollar was the worst performer this week among the 16 most-traded currencies tracked by Bloomberg.

“The extent of the rally is quite astonishing,” said Matthew Strauss, a senior currency strategist at RBC Capital Markets in Toronto. “If U.S. dollar weakness continues, it could have far-reaching implications not only for the Canadian dollar, but for currencies across the world.”

The dollars of New Zealand and Australia, which like the Canadian currency tend to track fluctuations in commodity prices and stocks, gained 6 percent and 4.5 percent, respectively, over the past five days against the greenback.

Canadian government bonds lost investors 1.9 percent this year, according to a Merrill Lynch & Co. index. The yield on the 10-year bond rose 16 basis points on the week, or 0.16 percentage point, to 3.26 percent. It touched the highest since Dec. 1 yesterday, 3.29 percent. The price of the 3.75 percent security due in June 2019 fell C$1.40 to C$104.19.

‘Serious Downside’

U.S. Treasuries dropped yesterday, pushing 10-year notes to their biggest weekly loss since June 2008, as investors prepared for the government to resume debt sales after a two-week hiatus.

“If these auctions don’t go well, we could see some serious downside” in 10-year government note prices on both sides of the border, said MF Global’s Leavitt. “We can’t consider ourselves immune from what’s happening in the U.S.”

The Dollar Index, used by the ICE to track the U.S. currency versus the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, touched 79.805 yesterday, the lowest since Dec. 29.

Pacific Investment Management Co.’s Bill Gross said on May 21 in an interview on Bloomberg Television the U.S. will “eventually” lose its AAA credit rating. President Barack Obama’s administration will sell a record $3.25 trillion of debt in the fiscal year ending Sept. 30 to fund a growing budget deficit, according to an estimate by Goldman Sachs Group Inc.

Canadian Currency Advances to Strongest Level in Seven Months

May 21 (Bloomberg) -- Canada’s dollar rose for a fourth day, touching the strongest level since October, as its U.S. counterpart weakened against most major currencies.

“It’s part of the general move against the U.S. dollar,” said Meg Browne, a currency strategist at Brown Brothers Harriman & Co. in New York. “It looks like this is going to continue.”

The Canadian currency gained 0.4 percent to C$1.1374 per U.S. dollar at 5 p.m. in Toronto, from C$1.1418 yesterday. One Canadian dollar buys 87.92 U.S. cents. The loonie, as Canada’s currency is known, touched C$1.1349, the strongest level since Oct. 14.

The U.S. dollar fell today against all of the 16 most- traded currencies tracked by Bloomberg except the Brazilian real and Mexican peso as an increase in Treasury yields and gold prices indicated inflation may accelerate while the U.S. budget deficit widens. The greenback is the worst-performing major currency this month.

The markets are beginning to anticipate the possibility of the U.S. losing its AAA credit rating “eventually,” said Bill Gross, the co-chief investment officer of Pacific Investment Management Co., in an interview on Bloomberg Television.

Canada’s dollar surged 14 percent after reaching a four- year low on March 9 as investors stepped out of havens to seek higher-yielding assets such as stocks and commodity-linked currencies.

No Quick Turnaround

“Looking at momentum indicators, it doesn’t look like this move is going to turn around any time soon,” said BBH’s Browne. “The U.S. dollar may extend declines into next week.”

The 14-day relative strength indicator for the U.S. dollar against the Canadian dollar stood at 31.4. Readings below 30 and above 70 indicate a reversal may occur.

“Overall I’m fairly constructive longer term on the Canadian dollar,” said Jonathan Gencher, Toronto-based director of currency sales at BMO Capital Markets. The trend for the U.S. dollar versus the loonie is “biased to the downside.”

The yield on the 10-year Canadian government bond climbed as much as 15 basis points, or 0.15 percentage point, to 3.29 percent, the highest since Dec. 1. The price of the 3.75 percent security maturing in June 2019 fell C$1.13 to C$104.07.

Canadian Dollar and the Market

The Canadian dollar tanked last year dropping from being at par with US$ to below US $0.80. Huge drop. However, it is starting to recover now at US$0.86.

Interesting is the graph overlay of the CAD and S&P. As the market recover so is the Canadian dollar.

The question is how long will this market run up before turning down. If the market does turn down, then the it can be expected that US dollar will increase and CAD will drop.

Canadian Dollar - Time to go Long?

I have to think the Canadian dollar is one of the better currencies out there. Yes Canada is having its share of problems with the down turn in its economy. However, its fiscal policies are sound and as well their banks are in much better shape.

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The Canadian dollar has been among the weakest currencies in the past two weeks and the downturn has run too far, according to Citigroup currency strategist Todd Elmer.

“CAD weakness has overshot fundamentals. With USD broadly trading towards the top of recent ranges we believe there is a tactical opportunity to sell USD/CAD,” he said in a note to clients.

Mr. Elmer said both the fiscal and financial sector strength in Canada provide a strong foundation even as the Bank of Canada moves toward quantitative easing. He added that a base for commodity prices and stabilization in the flow of economic data could act as an immediate catalyst for the loonie’s appreciation.

“Canada benefits from one of the strongest financial sectors in the world and is better positioned fiscally than many of its peers. While Canada is set to run deficits for the first time in a decade, it still ranks close to the top by our gauge of fiscal resilience.”

He added that weakness for the Canadian dollar is likely a knee-jerk reaction to the Bank of Canada’s hint regarding quantitative easing, while investors may have entered into long U.S. dollar positions amid the decline in risk appetite.

However, Mr. Elmer does not think a sell-off for the loonie can be sustained on the basis of the Bank of Canada’s actions alone. Citigroup’s indicator shows that investors unwound peak Canadian dollar long exposure over the course of the past two years.

“Entering 2009, positioning was close to flat, suggesting there is now limited scope for a flush-out of CAD longs,” he said. “With investors still seeking to preserve capital, a sharp build-up in CAD shorts looks unlikely.