Canada dollar gains second day as earnings bolster risk demand

The Canadian dollar (FOREX:CADUSD) advanced for a second day as Alcoa Inc. started the U.S. earnings season with results that exceeded analysts’ estimates, boosting demand for riskier assets.

The currency remained higher after a report showed June housing starts exceeded forecasts. Stocks rose and crude oil, Canada’s biggest export, traded at almost its highest level in 14 months before data forecast to show U.S. crude supplies fell for a second week and as bloodshed in Egypt stoked concern that Middle Eastern exports may be disrupted.

“Given the fact that this risk-on move is sustained, we could end up slightly more positive for the Canadian dollar,” said David Tulk, chief macro strategist at Toronto-Dominion Bank’s TD securities unit, by phone from Toronto. “We’ll probably end up in the current range, but probably biased to see a bit more strength for today.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, rose 0.3% to C$1.0527 per U.S. dollar at 9:54 a.m. in Toronto. One loonie buys 94.99 U.S. cents.

Options Data

The cost to insure against declines in the loonie versus its U.S. peer fell to its lowest point in three weeks. The three-month so-called 25-delta risk reversal rate fell to 1.4950, the least since June 18. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

Canada’s benchmark 10-year bonds fell, pushing yields up one basis point, or 0.01 percentage point, to 2.48%. The 1.5% security maturing in June 2023 lost seven cents to C$91.43.

The Bank of Canada will auction C$3.4 billion ($3.2 billion) of five-year notes with a coupon of 1.25% tomorrow.

Housing starts were 199,586 at a seasonally adjusted annual pace in June, Ottawa-based Canada Mortgage & Housing Corp. said on its website today. Economists forecasted a reading of 187,500 according to the median of 22 responses to a Bloomberg News survey.

Futures on crude oil fell 0.1% to $103.02 per barrel in New York after reaching $104.12 yesterday, the highest level since May 2012. The Standard & Poor’s 500 Index of U.S. stocks added 0.5%, while the S&P/TSX Composite Index, the benchmark Canadian equity gauge, increased 0.2%.

Risk Bid

“There is a vague appetite for risk as we’re seeing equities slightly higher, volatility is slightly lower,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia, said by phone.

Aluminum producer Alcoa’s profit excluding expenses related to output cuts and a legal settlement were 7 cents a share in the second quarter, Alcoa said yesterday, topping the 6-cent average of 15 estimates compiled by Bloomberg. Sales fell 1.9% to $5.85 billion, surpassing the $5.79 billion average of nine estimates.

Hedge funds and other large speculators increased their bets last week the Canadian dollar will decline against the greenback, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers on a decline in the Canadian dollar compared with those on a gain -- so-called net shorts -- was 16,250 on July 2, compared with net shorts of 10,638 a week earlier.

The Canadian dollar has risen 1.3% in the past three months against nine developed nations currencies tracked by the Bloomberg Correlation Weighted Index. The U.S. dollar has gained 5.4%.

www.bloomberg.com

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