Canada's dollar climbed to the strongest level in almost three weeks amid speculation an accelerating economic recovery will prompt the central bank to raise interest rates sooner than it expected.
The currency strengthened for a fourth straight day versus its U.S. counterpart after Finance Minister Jim Flaherty said in an interview that China may be poised to buy Canadian dollars as it seeks to shield its reserves against the U.S. dollar's decline. Crude oil, Canada's biggest export, surged.
"Investors do like the Canadian dollar," said Amelia Bourdeau, a currency strategist in Stamford, Conn., at UBS AG. "The market continues to think the Bank of Canada will hike before the Fed. The fiscal position of Canada is in a much better shape than many other countries."
The Canadian dollar appreciated 0.9% to C$1.0478 per U.S. dollar at 1:06 p.m. in Toronto, from C$1.0574 Tuesday. It touched C$1.0471, the strongest level since Dec. 4. One Canadian dollar buys 95.43 U.S. cents.
The loonie briefly pared gains after a Statistics Canada report showed the nation's gross domestic product grew 0.2% in October, less than the 0.3% forecast in a Bloomberg News survey of economists, and a U.S. report showed purchases of new American homes unexpectedly fell last month.
Canada's currency gained versus 12 of its 16 most-traded counterparts tracked by Bloomberg today and was the top performer this month. The loonie climbed 16% this year.
"The trend has definitely been very favorable for the Canadian dollar over the last few days," said C.J. Gavsie, Toronto-based managing director for foreign-exchange trading at Bank of Montreal, Canada's fourth-largest lender. "In comparison to the other majors, Canadian dollars held in incredibly well against the dollar."
Traders are raising bets that the nation's central bank will increase interest rates on signs of an economic revival. The yield on the overnight index swap due in nine months, based on predictions for the Bank of Canada's rate at that time, was 0.4%, almost the highest level in two months, from 0.38% on Dec. 18 and 0.32% at the end of November.
Central-bank policy makers next meet to determine interest rates on Jan. 19. They held the benchmark rate steady at a record low 0.25% at their last meeting on Dec. 8 and reiterated a pledge to leave it there though June 2010, barring a change in the inflation outlook.
The Federal Reserve repeated Dec. 16 that it will keep U.S. interest rates "exceptionally low" for an "extended period."
Finance Minister Flaherty said Canada has the lowest debt levels among the Group of Seven nations, making its currency a relatively safer investment.
"It does not surprise me that China and Russia would take greater positions in the Canadian dollar than they have previously," Mr. Flaherty said during a Bloomberg interview Tuesday in his office in Ottawa. "I would expect countries looking around the world to invest in market currencies that are reliable."