Dollar May Be Near Peak Versus Canada’s Currency, Barclays Says

By Candice Zachariahs

Feb. 19 (Bloomberg) -- The U.S. dollar may be nearing its peak against Canada’s currency as investors begin to focus on the smaller nation’s better long-term growth prospects, according to Barclays Capital.

The greenback, which has risen 19 percent against Canada’s so-called loonie in the past six months, traded at C$1.2585 as of 11:56 a.m. in Tokyo, compared with Barclays’ peak forecast for C$1.30. Investors should buy options to sell the U.S. dollar in nine months at C$1.18, the London-based bank said.

“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,” Barclay’s strategists Steven Englander and Mathieu Zaradzki 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.”

Bank of Canada Governor Mark Carney cut interest rates to 1 percent last month, the lowest level since the bank was founded in 1934. The nation’s economy will expand 3.8 percent next year, he told the House of Commons Finance Committee on Feb. 10.

Interest rates are as low as zero in the U.S. and the Federal Reserve signaled in January that it was prepared to buy Treasury securities to spur lending.

The U.S. economy is contracting at a “disturbing pace” and gross domestic product will fall “markedly” through June, Fed Bank of Chicago President Charles Evans said yesterday. The U.S. will grow 1.9 percent in 2010 according to the median forecast of economists surveyed by Bloomberg News this month.

The Bank of Canada is likely to begin raising borrowing costs before the Fed and its government’s fiscal spending is likely to be “less expansive” than the U.S. and entail lower sovereign debt sales, New York-based Englander and London-based Zaradzki wrote.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.