Canadian dollar hits 8-month high

Toronto: Canada's dollar rose the most in eight months on bets economic growth will fuel demand for the nation's raw materials and Europe's debt crisis spurred demand for currencies backed by relatively strong balance sheets.

The Canadian currency, known as the loonie, has appreciated 11.4 per cent this year, the best performance among its developed-world counterparts, Bloomberg Correlation-Weighted Indexes show. The nation's wholesale sales rose 0.3 per cent in April, according to a median forecast of 172 economists in a Bloomberg survey before a report on June 17.

"What we've seen (last) week is that there will be austerity programmes, there are still vectors of strength in the world," said Stefane Marion, chief economist at National Bank Financial in Montreal. "The Canadian dollar has held up really well in a situation where people are worried about a double dip in the economy."

The Canadian currency rose 2.9 per cent to C$1.0322 (Dh 3.66484) per US dollar in Toronto, compared with C$1.0629 on June 4, the biggest gain since the five days ended October 9, 2009. It reached C$1.0288 on June 10, the strongest since May 18. One Canadian dollar buys 96.88 US cents.

The loonie has risen 1.2 per cent since June 1, when the Bank of Canada raised its target interest rate to 0.50 per cent from a record low 0.25 per cent, the first Group of Seven country to do so since last year's global recession.

Canada will have the lowest net debt-to-output ratio among the G7 countries, and along with the US will have the fastest economic growth this year, the International Monetary Fund's April 2010 World Economic Outlook predicted.

Canadian monetary and fiscal policy "continues to suggest the making of a reserve currency," making it less likely that international investors will sell the nation's assets during economic shocks, BNP Paribas said on June 10.

Global demand for commodities will "force the Bank of Canada to tighten faster than the market is currently pricing in," BNP analysts wrote in an emailed note.

"The end benefit for Canada is the rising credibility of the central bank as it correctly anticipated the subprime crisis and presided over a stable banking system."