Canadian Dollar Rises Most in Three Weeks as Gold, Oil Advance
Canada’s dollar gained the most in three weeks as commodity prices climbed and a government report showed an rise in consumer costs.The currency tends to follow the price of commodities, which account for about 54 percent of Canada’s exports. Gold jumped after a drop in the U.S. dollar boosted the metal’s appeal. Crude oil rose on speculation the U.S. Energy Department tomorrow will report inventories fell for a fourth straight week.
“Strong commodity prices were helping this last move,” said C.J. Gavsie, vice president of North American foreign exchange sales at BMO Capital Markets in Toronto.
Canada’s dollar strengthened to 86.78 U.S. cents at 4:26 p.m. in Toronto from 86.41 cents yesterday, gaining the most since Nov. 24. The currency touched 86.84 cents. One U.S. dollar buys C$1.1523.
Orders to exit long positions, or bets on a Canadian dollar advance, were executed after the currency reached C$1.1520, halting its gains, Gavsie said.
Gold futures for February delivery rose $7.60, or 1.2 percent, to $621.60 on the New York Mercantile Exchange. The percentage increase was the biggest since Nov. 30. Crude oil for January delivery rose $0.94, or 1.51 percent, to $63.15 a barrel on the New York Merc.
The Canadian currency also rose after a government report showing a larger-than-expected increase in consumer prices excluding volatile items led currency traders to reduce bets for interest rate cuts early next year.
Statistics Canada said the year-over-year consumer price index excluding eight volatile items such as energy and fruit rose 2.2 percent November. The median forecast of 20 economists surveyed by Bloomberg News was for a 2.1 percent rise. Core prices gained 2.3 percent on an annual basis in October.
Rate Outlook
The Bank of Canada will cut its benchmark lending rate to 4 percent from 4.25 percent by the end of 2007, according to 11 economists polled by Bloomberg News on Dec. 8. Futures traders are pricing in just one cut for all of 2007.
“The projection of rate cuts has been cut back,” said Tim Mazanec, senior foreign-exchange strategist at Investors Bank & Trust Co. in Boston. The move gave a boost to the Canadian currency, he added.
Interest rate futures show investors see no chance that Canada’s central bank will cut its key interest rate for overnight loans between banks in the first half of 2007.
Futures show traders see a 40 percent chance the Bank of Canada will cut interest rates to 4 percent at its rate-setting meeting May 29. The yield on the June futures contract fell 2 basis points to 4.17 percent.
The yield on Canada’s benchmark 10-year note fell 1 basis point to 4.03 percent. The price of the 4 percent security maturing in June 2016 rose 6 cents to C$99.75. Bond yields move inversely with prices.