Canada’s Dollar Strengthens as Option Traders Turn Less Bearish

December 08, 2011, 8:32 AM EST By Chris Fournier

Dec. 8 (Bloomberg) -- Canada’s dollar rose against a majority of its most traded counterparts and strengthened versus the U.S. currency as options traders turned less bearish on the currency on speculation it may benefit from rising oil prices and North American economic growth.

Canada’s dollar, nicknamed the loonie, traded at almost the highest since September against the euro after the European Central Bank cut the benchmark rate by a quarter-percentage point. Crude oil stayed above $100 a barrel.

“The Canadian dollar can probably hold up better than its commodity-currency peers,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London, in a telephone interview. “Canada is far less exposed to Asia, far more exposed to the U.S. where the data flow has been slightly better recently. That maybe points to a slightly more robust picture in North America.”

Canada’s currency rose 0.1 percent to C$1.0085 per U.S. dollar at 8:03 a.m. in Toronto. It rose against 12 of its 16 most-traded peers. One Canadian dollar buys 99.17 U.S. cents.

The one-month 25-delta risk reversal rate, which measures the premium charged for the right to buy the U.S. dollar in one month against the loonie over contracts to sell, fell to 1.99 percentage points today, the lowest level since Sept. 19.

ECB Target Rate

ECB policy makers meeting in Frankfurt lowered the benchmark interest rate by a quarter percentage point to 1 percent to match a record low, as expected by 55 of 58 economists in a Bloomberg News survey. They may also loosen collateral criteria to give banks greater access to cheap cash and offer longer-term loans, said three euro-area officials with knowledge of the deliberations. ECB President Mario Draghi will hold a press conference.

“A 25 basis point cut will have very little impact,” said Morgan Stanley’s Stannard, before the rate announcement. “The overall picture is still quite negative regardless of the actions we see coming from the ECB.”

Stannard predicted the euro will fall to the C$1.32 to C$1.31 “over the course of the next few weeks, heading into the next year,” he said.

The euro dropped today 0.1 percent to C$1.35282 after touching C$1.3498, the lowest level since September.

“For the longer term I think we can even look for a much bigger move lower in euro-Cad,” he said, referring to the euro- Canadian dollar exchange rate.

Canada’s government bonds were little changed, with the yield on the benchmark two-year debt unchanged at 0.91 percent. The price of the 1 percent security due in February 2014 dropped 1 cent to C$100.20.

--Editors: Dennis Fitzgerald, Dave Liedtka

To contact the reporter on this story: Chris Fournier in Halifax, Nova Scotia, at cfournier3@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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