Canadian Currency Strengthens as Oil Pares Loss, Risk Aversion Decreases

Canada’s dollar swung to a gain versus its U.S. counterpart after touching the lowest level in more than three months as U.S. stocks climbed and losses in commodities such as crude oil were tempered.

The Canadian currency, sometimes called the loonie is headed for a 1.9 percent drop in June after a 2.4 percent decline in the previous month. Futures traders reduced bets the Bank of Canada will raise interest rates in 2011 after Canadian and U.S. policy makers reduced growth estimates.

“Everything turned on a dime with equities,” said Steve Butler, director of foreign-exchange trading in Toronto at Bank of Nova Scotia’s Scotia Capital unit. “I don’t see it too much lower with commodities not looking too well supported,” he said, referring to the U.S. dollar.

Canada’s dollar appreciated 0.2 percent to 98.70 cents per U.S. dollar at 1:19 p.m. in Toronto, compared with 98.86 cents on June 24. The loonie earlier fell as much as 0.3 percent to 99.13 cents, the weakest level since March 17. One Canadian dollar buys $1.0138.

The Standard & Poor’s 500 Index rose 0.9 percent, the first gain in four days, after regulators issued new capital rules to safeguard the global financial system. The MSCI World, an index of developed-market stocks, advanced 0.4 percent.

Crude futures for August delivery dropped as much as 1.7 percent to $89.61 a barrel in New York, before rebounding to $90.51 a barrel, down 0.7 percent.

The loonie is headed for the first two-month loss in a year as rising concern that debt-strapped Greece will default and an economic slowdown in the U.S. makes interest-rate increases by the Bank of Canada less likely, according to wagers made by futures traders.

The yield on the December 2011 bankers’ acceptances futures contract slipped to 1.33 percent today, the lowest since the contract started trading in December 2008, indicating traders are trimming bets on a rate increase this year.

“Risk dynamics and commodity performance have proved to favor the U.S. dollar overall at the expense of currencies like the Australian dollar and the Canadian dollar,” said Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “We have rate strips in Australian dollars and Canadian dollars moving higher, which is limiting rate support for the currencies,” he said, referring to the so-called Bax contracts, whose yield falls as the price climbs.

Stretch predicts the currency could depreciate through parity and beyond versus the greenback should Greek lawmakers fail to pass austerity measures. Greek lawmakers will today start debating the 78 billion-euro ($111 billion) budget package that officials say is needed to receive a loan payment and future financing.

“Should Greek politicians press the nuclear buttons we could rally towards C$1.0060 per U.S. dollar relatively easily and potentially above there, C$1.02,” Stretch said.

Canadian consumer prices rose 3.3 percent in May from a year earlier, matching April’s pace, according to the median of 24 forecasts compiled by Bloomberg. Statistics Canada is due to report the data on June 29 in Ottawa.

Yields on 10-year Government of Canada bonds rose 3 basis points to 2.89 percent. The price of the 3.25 percent security maturing in June 2021 slid 23 cents to C$103.13.