By Molly Seltzer
Feb. 19 (Bloomberg) -- Canada’s currency gained for a second day on speculation a weaker U.S. dollar will drive investor demand for commodities such copper and oil as a hedge against potential inflation.
“The story now is more about U.S. dollar weakness,” said Eric Lascelles, chief economics strategist at TD Securities Inc. in Toronto. “Commodities aren’t jumping like they did for a while, but they’re still lending a bit of support, and the weak U.S. dollar helps the loonie in that respect.”
The Canadian dollar strengthened 1.1 percent to C$1.2471 per U.S. dollar at 7:58 a.m. in Toronto, from C$1.2609 yesterday. One Canadian dollar buys 80.18 U.S. cents.
Copper futures have gained 8.5 percent this year. Oil rose today for the first time in three days. Commodities such as crude oil, copper and aluminum account for about half of Canada’s export revenue.
The U.S. dollar may be nearing its peak against the loonie as investors begin to focus on Canada’s long-term growth prospects, according to Barclays Capital strategists Steven Englander and Mathieu Zaradzki.
“We see near-term risk that global risk aversion will persist and take the U.S. dollar-Canadian dollar to C$1.30, but we do not see any breaches of this level as being sustained,” the strategists wrote in a note to clients yesterday. “We see the Canadian dollar emerging with a cyclical growth profile that is as good as or better than that of the U.S. dollar, with far fewer structural and policy negatives.”
The greenback has risen 19 percent against Canada’s dollar in the past six months. Investors should buy options to sell the U.S. dollar in nine months at C$1.18, said the strategists.
The yield on the two-year government bond rose 3 basis points, or 0.03 percentage point, to 1.29 percent. The price of the 2.75 percent security due in December 2010 fell 7 cents to C$102.54.
To contact the reporter on this story: Molly Seltzer in New York at mseltzer4@bloomberg.net
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