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Investors back buying the Canadian dollar
Canada's currency gained as stocks rose on speculation President Barack Obama's plan to stem home foreclosures will bolster the U.S. economy, boosting demand for riskier assets.
"The loonie got clobbered yesterday [Tuesday] on fears the economy might not rebound," said David Watt, a senior currency strategist at RBC Capital Markets in Toronto. "Today people are saying the worst might be past and it's time to dip our toes back in. That's causing people to buy risk-sensitive and cyclically- sensitive assets like the loonie."
The Canadian dollar rose 0.8% to $1.2557 per U.S. dollar at 9:06 a.m. in Toronto, from $1.2654 Tuesday. It touched $1.2674 on Tuesday, the lowest in almost a month, as worries that eastern European banking losses would drive the global economy deeper into recession spurred investors to relatively safe assets like the U.S. dollar and Japanese yen. One Canadian dollar buys 79.553 U.S. cents.
The U.S. will use US$75-billion to bring down interest rates and encourage mortgage loan modifications, the Treasury Department said in a statement. The department also said it would double the amount of stock purchases of Fannie Mae and Freddie Mac to as much as US$200-billion of each company. President Obama will announce details of the program at 10:15 a.m. in Phoenix, deputy White House spokesman Jen Psaki said.
Canada's dollar appreciated against all but four of the 16 most-actively traded currencies. It rose 1.5% against the South Korean won and 1.2% against the yen. The South African rand, New Zealand dollar and Australian dollar gained against the dollar as demand for commodities such as gold increased.
The loonie, as Canada's dollar is known, reached a four-year low of $1.3017 on Oct. 28, and has touched the $1.30 level twice since before rebounding.
Canada's currency will trade at $1.26 against the U.S. dollar until the end of June before rebounding to $1.20 by year- end, according to the median forecast in a Bloomberg News survey of 43 economists.
The yield on the two-year government bond dropped two basis points, or 0.02 percentage point, to 1.198%. The price of the 2.75% security due in December 2010 climbed four cents to $102.76.
Molly Seltzer, Bloomberg
Published: Wednesday, February 18, 2009
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