The Canadian dollar (FOREX:CADUSD) gained versus the majority of its 16 most-traded counterparts as crude oil (NYMEX:CLV13), the country’s largest export, touched its highest level in more than two years.
The currency, called the loonie, rose against those of Canada’s commodity-exporting peers, Australia and New Zealand, amid bets military strikes by the U.S. against Syria may disrupt Middle East oil supplies. The loonie weakened against the U.S. dollar before data this week forecast to show the American economy expanded in the second quarter while Canada’s contracted in June, according to Bloomberg surveys of economists.
“There is a chain of impact that would cause crude-oil prices to rise, and an adjunct impact of that would be some strength in the Canadian dollar,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada, by phone from Toronto. “I see the geo-politics as having a temporary impact on financial markets, from having a flight-to- quality perspective, risk-aversion metrics, and of course commodity-price rises.”
The loonie, nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.1% to C$1.0489 per U.S. dollar at 9:59 a.m. in Toronto. It weakened as much as 0.4%. One Canadian dollar buys 95.34 U.S. cents.
Canadian government bonds fell for the first time in five days, pushing the yield on the benchmark 10-year security up from a two-week low of 2.56% reached yesterday. The yield increased five basis points, or 0.05 percentage point, to 2.61%. The price of the 1.5% debt due in June 2023 declined 43 cents to C$90.48.
Five-year yields rose four basis points to 1.88% before a government auction of the securities. The Bank of Canada said it will sell C$3.4 billion ($3.2 billion) of 1.25% debt due in September 2018.
The Canadian dollar was little changed over the past week against nine other developed-nation currencies tracked by the Bloomberg Correlation-Weighted Index. Australia’s dollar lost 0.7%, and the New Zealand dollar dropped 1.2%. The U.S. currency gained 0.2%.
Implied volatility for three-month options on Canada’s dollar versus its U.S. counterpart rose to 7.9%, the highest level on a closing basis since July 16. The measure is used to set option prices and gauge the expected pace of currency swings. The average for this year is 6.8%.
Futures for West Texas Intermediate crude climbed as much as 3% to $112.24 a barrel in New York, the highest level since May 2011, while Brent crude rallied as much as 2.6% to $117.34 a barrel.
A U.S.-led strike on Syria in retaliation for the alleged use of chemical weapons in its civil war is probable within the next week, raising the possibility Brent may hit $150 should a widening conflict halt oil output in Iraq or other producers, according to Societe Generale SA.
Standard & Poor’s GSCI Index of 24 raw materials increased 0.6%.
“There’s still a case to be made for Canada outperformance against Australia, for example, in terms of the dollar-bloc commodity currencies, on the basis that support from the oil prices that will mitigate, militate against, significant CAD underperformance,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce, by phone from London. “The U.S. dollar continues to make good progress across the board as risk aversion is prevalent.”
The Aussie dollar dropped 0.8% to 93.37 Canadian cents, and New Zealand’s currency fell 0.4% to 81.32 Canadian cents.
The Bloomberg Dollar Index, which tracks the greenback against 10 major counterparts, rose 0.5% to 1,029.68.
U.S. gross domestic product increased an annualized 2.2% in the second quarter, more than first estimated, a government report tomorrow is forecast to show. Canada’s GDP shrank 0.4% in June, a Bloomberg survey estimated before data due Aug. 30.