Canada’s Dollar Gains as U.S. Currency Loses Haven Appeal

By Chris Fournier

Dec. 8 (Bloomberg) -- Canada's dollar rose the most in two weeks as President-elect Barack Obama's pledge to spend the most on infrastructure since the 1950s reduced the U.S. currency's haven appeal.

"It's a risk-appetite move," said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. "We're seeing the U.S. dollar weaker across the currency board."

The Canadian dollar appreciated as much as 2.1 percent to C$1.2448 per U.S. dollar, from C$1.2702 on Dec. 5, the biggest intraday gain since Nov. 24. The currency traded at C$1.2544 at 4:23 p.m. in Toronto. One Canadian dollar buys 79.72 U.S. cents. The Canadian dollar may strengthen to C$1.20 by year-end, Gallo maintains.

The U.S. dollar weakened against all of the 16 most actively traded currencies except Japan's yen and Brazil's real as investors sought higher-yielding assets.

"Broad-based U.S. dollar weakness and decreased risk aversion triggered" the Canadian dollar rally, wrote George Davis, Toronto-based chief technical analyst at RBC Capital Markets, in a note to clients today. "Our bullish view for the U.S. dollar against the Canadian dollar is currently being tested."

Canada's currency has lost 19 percent in six months as the global recession reduced demand for commodities, which generate about half of Canada's export revenue. Crude oil plunged 70 percent since reaching a record $147.27 a barrel on July 11. Oil for January delivery rose today to $44.04 a barrel.

The loonie may drop 2.2 percent versus its U.S. counterpart in the next several days, according to Citigroup Inc. analysts, who cited a faltering economy and a hamstrung government unable to deliver a timely stimulus.

Jobs Report

Employers cut 70,600 jobs in November, the most since 1982 and almost triple economists' projections, a government report showed Dec. 5. Canadian new-home starts fell more than predicted in November, Canada Mortgage and Housing Corp. said today.

Prime Minister Stephen Harper suspended Parliament last week until Jan. 26 to fend off an attempt by a coalition of opposition parties to oust his government.

Canada's central bank will cut its target lending rate by a half-percentage point to 1.75 percent when it meets tomorrow, according to the median forecast of 17 economists in a Bloomberg News survey. The European Central Bank, the Bank of England and other central banks cut rates last week.

Commodity Plunge

"The plunge in commodity prices and aggressive rate moves around the globe in the past month argue for a larger move from the Bank of Canada perhaps," Shaun Osborne and Jacqui Douglas, currency strategists at TD Securities Inc. in Toronto, wrote in a note today. "We're leaning towards a 50-basis-point ease."

In remarks on NBC's "Meet the Press" program yesterday, Obama reiterated a commitment to the biggest investments in U.S. infrastructure since President Dwight D. Eisenhower created the interstate highway system a half-century ago.

The yield on the two-year government bond rose 2 basis points, or 0.02 percentage points, to 1.58 percent. The price of the 2.75 percent security due in December 2010 fell 5 cents to C$102.27.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

Last Updated: December 8, 2008 16:28 EST


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