The Canadian dollar surged surpassing its six-week high as factory sales bolster at the most rapid pace in five months in July, boosting to indications that economic growth is bouncing back. The currency appreciated a second day against its U.S. counterpart as the cost of living in America hiked less than estimate in August, an indication that it will take time for inflation to achieve the U.S. Federal Reserve’s target. The Federal Open Market Committee completes a two-day assembly tomorrow after which policy makers will declare whether they will slow monthly asset purchases, which are aimed to stimulate the economy and may also devalue the U.S. currency. Loonie Advances The Canadian dollar may be due for further advances tomorrow even if the Fed says it will reduce asset purchases by as much as $10 billion per month, as long as the central bank accompanies the move with a statement stressing a longer time frame before interest rates hike, Adam Cole, head of Group of 10 currency strategy at Royal Bank of Canada, said. Factory Sales Factory sales jumped 1.7 percent to C$49.5 billion ($48 billion), Statistics Canada reported from Ottawa, with the total boosted by upward revisions to the prior two months. The gain exceeded all 18 economist forecasts in a Bloomberg survey with a median of 0.5 percent. ‘Small Tapering’ “A little softer than expected, so in theory that would strengthen the Canadian dollar relative to the U.S. dollar,” said Robert Kavcic, senior economist at Bank of Montreal, by phone from Toronto. “Inflation is still very benign and well behaved, so I don’t think the Fed is going to read too much into this one release. We’re expecting a small tapering announcement tomorrow.” The loonie reached a one-month high against the greenback yesterday after former U.S. Treasury Secretary Larry Summers’s withdrawal from the race to head the Fed boosted bets for slower tapering. Fed Vice Chairman Janet Yellen, who has helped create the central bank’s stimulative policies in recent years, is President Barack Obama’s top candidate to lead the central bank, according to people familiar with the process. Implied volatility for three-month options on Canada’s dollar versus its U.S. counterpart fell to 6.7 percent, near the 6.6 percent level reached Sept. 11 that was the weakest position in four months. The average for this year is 6.8 percent. The measure is used to set option prices and gauge the expected pace of currency swings. The Canadian dollar has relinquished 2.8 percent in the last year against nine developed-nation currencies tracked by the Bloomberg Correlation Weighted Index. That’s the third worst performance in the index, behind only the Australian dollar’s 8.6 percent decline and the yen’s 20 percent drop. The U.S. dollar boosted 3.4 percent.
