Commodity Blog

Canada’s dollar touched the highest in three months amid speculation that a rebound in global economic growth will benefit commodity-linked currencies.
The loonie, as the Canadian dollar is known, strengthened for a third straight day as increased investor risk appetite drove the currency through key technical barriers. Copper prices climbed 5.3 percent, extending a 51 percent surge this year. Raw materials including copper generated 56 percent of the nation’s export revenue last year.
“We’re seeing some pretty steady interest in Canadian assets and the Canadian dollar,” said Samarjit Shankar, director of strategy for the global markets group in Boston at Bank of New York Mellon, the largest custodial bank. “If you’re looking for opportunities in developed markets, you’re looking at those that are potentially positioned for eventual recovery in economic growth. People are positioning themselves for that, so there’s been a renewal of interest in commodity currencies.”
Canada’s currency gained 1 percent to C$1.2027 per U.S. dollar at 4:17 p.m. in Toronto. It touched C$1.2014, the strongest since Jan. 12, when it reached C$1.1872. One Canadian dollar buys 83.14 U.S. cents.
After reaching a four-year low of C$1.3064 on March 9, the loonie appreciated as investors ventured out of haven currencies such as the U.S. dollar and the Japanese yen to purchase riskier assets, including stocks and commodity currencies.
‘Fear’ Lessened
Events such as the Group of 20 nations summit in London this month, where leaders announced a $250 billion initiative to support trade finance, and higher-than-forecast earnings April 9 from Wells Fargo & Co. have “helped turn around the Canadian dollar,” said David Watt, senior currency strategist at RBC Capital Markets Inc., a unit of Canada’s biggest bank by assets.
“These seem to have lessened the ’fear’ in markets,” Toronto-based Watt said. “As the Canadian dollar had lagged the Australian dollar and other commodity currencies during the recent love affair with risk, the Canadian dollar had some catching up to do.”
The loonie gained 5.6 percent against the greenback over the past month, compared with a 10.6 percent advance by the Aussie and a 10.7 percent increase by the New Zealand dollar.
“We’ve seen how well the Aussie and the kiwi rebounded recently while the Canadian dollar underperformed until the beginning of last week,” said Sacha Tihanyi, a strategist at Scotia Capital Inc., a unit of Canada’s third-largest bank. “This is likely due to Canada’s greater leverage to U.S. economic performance, auto-sector worries and the prospect for quantitative easing in the country.”
‘Everyone’s Doing It’
Bank of Canada Governor Mark Carney is scheduled to announce guidelines on April 23 about quantitative easing, a policy in which a central bank buys government debt to try to revive economic growth. Although similar measures weakened currencies in the U.S. and U.K. when they were announced, strategists said that’s not likely to happen in Canada.
“People are looking at how their policy makers are handling things,” said Shankar at Bank of New York Mellon, which administers more than $20 trillion. “There’s been a steady hand on the wheel in Canada. You’ve had relative policy stability.”
The Canadian dollar could strengthen to C$1.20 in the next “couple of days,” said Firas Askari, head currency trader in Toronto at BMO Nesbitt Burns, a unit of Bank of Montreal.
“Other currencies have dealt fine with respect to their own quantitative easing,” Askari said. “Everyone’s doing it.”
Canadian government bonds dropped today. The yield on the two-year note increased three basis points, or 0.03 percentage point, to 1.12 percent. The price of the 1.25 percent security due in June 2011 fell 6 cents to C$100.27.
Trading Patterns
The loonie earlier extended gains as crude oil for May delivery rose as much as 2.8 percent. Energy products such as crude and natural gas generated a quarter of Canada’s exports last year, according to the nation’s statistics office.
Most of today’s advance was due to technical trading patterns, based on levels where traders put automatic stop-loss orders, said Steve Butler, director of foreign-exchange trading in Toronto at Scotia Capital Inc., a unit of Canada’s third- largest bank.
“The Canadian dollar is on fire today,” Butler said. “We definitely hit some stops when we got through yesterday’s lows, around C$1.2064,” meaning the currency reached levels that triggered orders to sell the U.S. dollar and buy the loonie.
The breach of the technical level was “a solid catalyst for today’s move,” said Scotia Capital’s Tihanyi in Toronto.
In a separate note to clients, Tihanyi wrote that “there may be nothing much standing in the way from a technical perspective of an eventual retest of early January lows just south of the C$1.18 level.”
Canada’s currency will weaken to C$1.26 against the greenback by the end of this quarter before rebounding to C$1.16 in 2010, according to the median forecast in a Bloomberg survey of 38 economists and analysts.