Canadian Dollar Rises the Most in a Week as U.S. Dollar Drops

By Chris Fournier

Aug. 27 (Bloomberg) -- Canada's dollar climbed the most in almost a week as its U.S. counterpart fell against all of the world's major currencies after European Central Bank council member Axel Weber said there's no scope for interest-rate cuts.

The Canadian dollar appreciated 0.4 percent to C$1.0444 per U.S. dollar at 9:32 a.m. in Toronto, from C$1.0485 yesterday. The currency gained 1.6 percent on Aug. 21. One Canadian dollar buys 95.74 U.S. cents.

``It's a matter of looking at the Canadian dollar in the context of the broader market movement against U.S. dollars,'' said Stewart Hall, a market strategist at HSBC Securities Canada in Toronto. ``There's some profit taking, some consolidation in the U.S. dollar based on more hawkish comments out of the European Central Bank's Weber.''

Canada's currency will slip to C$1.10 against the U.S. dollar by the end of 2009, according to the median forecast of economists surveyed by Bloomberg News.

``This is more just a big dollar sell-off,'' said Jonathan Gencher, director of currency sales in Toronto at BMO Capital Markets. ``Canada is just being tagged along.''

The yield on the two-year Canadian government bond declined 1 basis point, or 0.01 percentage point, to 2.83 percent. The price of the 2.75 percent security due in December 2010 rose 1 cent to C$99.84. The 10-year bond's yield rose 1 basis point to 3.56 percent.

The two-year bond's yield will rise to 3.09 percent by the end of this year, while the 10-year bond's yield will increase to 3.86 percent, according to the median forecasts of economists surveyed by Bloomberg News.

The yield advantage of the 10-year U.S. Treasury note compared with similar-maturity Canadian government bonds was 28 basis points, down from 36 basis points on Aug. 11. The Canadian 10-year bond yielded 36 basis points more than its U.S. counterpart on Jan. 22.

Canadian government bonds have returned 4.8 percent in 2008, according to Merrill Lynch & Co. index statistics. U.S. Treasuries have returned 4 percent this year.

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