Canada’s Dollar Climbs to 11-Month High
The Royal Bank of Canada, the nation’s largest bank by assets, forecasts the Canadian dollar will strengthen 2 percent to C$1.08 by the end of the third quarter, on expectations the country’s benchmark interest rate will increase this year to curb inflation while the U.S. Federal Reserve stays on hold. The outlook was revised higher last week from the firm’s previous forecast of C$1.13, according to Monica Fan, global head of foreign-exchange strategy at RBC in London. The currency will drop back to C$1.10 by the end of the fourth quarter, stronger than the firm’s previous estimate of C$1.12, Fan said. The Canadian dollar is nearing a 28-year high of 91.44 cents, matched on May 31, 2006. Futures traders last week placed the largest bet for the Canadian dollar to rise since the week ended Oct. 6, further adding to the currency’s momentum, figures from the Washington- based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on an advance in the Canadian dollar compared with those on a drop — so-called net longs — was 8,851 on May 1, compared with net shorts of 1,631 a week earlier. Largest Bet The data shows a reversal from bets on the Canadian dollar to fall, according to CFTC data. Futures are agreements to buy or sell assets at a set price and date. The figures reflect holdings in currency-futures contracts at the Chicago Mercantile Exchange as of May 1. Interest-rate futures traders have increased bets for a Bank of Canada rate increase later this year. Policy makers kept the benchmark lending rate at 4.25 percent on April 24 for a seventh straight meeting. The yield on the September bankers’ acceptances futures contract has gained 41 basis points, or 0.41 percentage point, since March 5 to 4.46 percent on the Montreal Exchange. Bankers’ acceptances futures have settled at a three-month lending rate averaging 16 basis points above the central bank’s rate target since Bloomberg started tracking the difference in 1992. Fed Cut Foreseen The Federal Reserve will lower its benchmark lending rate between banks by 25 basis points to 5 percent by the end of the year to stimulate a slowing U.S. economy, according to the median of 71 economists polled by Bloomberg on April 9. The yield on Canada’s benchmark 10-year bond maturing June 2016 fell a second day by 2 basis points to yield 4.19 percent. The price, which moves inversely to yield, gained 16 cents to C$98.65. The yield premium, or spread, between the 10-year U.S. Treasury and its Canadian counterpart narrowed to 45 basis points, near a 12-month low reached May 4.