Canada’s Dollar Gains as Stock Markets Rise on Bank Stake Hopes

By Chris Fournier

Feb. 23 (Bloomberg) -- Canada’s currency rose for a fourth straight day against the greenback as speculation that the U.S. government would increase ownership of domestic banks to shore up the financial system led investors to shun haven currencies and buy higher-yielding assets.

“We’re expecting the Canadian dollar to trade with the flow in equities as a primary influence,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “The U.S. dollar has been mixed because of the ongoing machinations inside the U.S. financial industry. Price volatility continues to be dramatic.”

The Canadian dollar appreciated 0.4 percent to C$1.2480 per U.S. dollar at 9:13 a.m. in Toronto, from C$1.2520 on Feb. 20. It touched C$1.2355, the strongest since Jan. 16. The currency’s winning streak is the longest since the four sessions ended Jan. 26. One Canadian dollar buys 80.13 U.S. cents.

The U.S. dollar fell against 11 of the 16 most actively traded currencies after the Wall Street Journal, citing unidentified people, said the government may raise its holding in Citigroup Inc.

“The U.S. dollar is generally lower on the back of the expectation of help with Citigroup,” said Royal Bank of Canada’s Adam Cole, London-based global head of currency strategy.

The MSCI World, an equity index of 23 developed countries, advanced 0.6 percent. The Standard & Poor’s 500 Index climbed 0.9 percent after U.S. financial regulators said they stand “firmly” behind the nation’s banks.

‘Pretty Weak’

Canada’s currency will trade at C$1.26 against the U.S. dollar until the end of June before rebounding to C$1.22 by year- end, according to the median forecast in a Bloomberg News survey of 43 economists.

The loonie, as Canada’s currency is known, briefly erased gains after a government report showed Canadian retail sales fell in December twice as much as economists forecast.

“The retail sales data does suggest a pretty weak end of the year for the Canadian economy,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “Perhaps that’s enough to get the Canadian dollar trading a little more defensively intraday.”

Canadian retail sales tumbled 5.4 percent in December, the most since January 1991, to C$33 billion ($26.5 billion), Statistics Canada said today as consumers curtailed spending in all areas, particularly cars, building supplies and clothes. Economists expected a 2.7 percent drop, based on the median of 17 estimates.

“The Canadian dollar is coming under pressure after the retail sales data,” said Dave Bradley, director of foreign exchange trading at Scotia Capital Inc. in Toronto. “It’s only a matter of time for the Canadian dollar to weaken off further. The data in Canada is all negative.”

The yield on the two-year government bond held steady at 1.23 percent. The price of the 2.75 percent security due in December 2010 was little changed at C$102.66.

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