Canada’s Dollar Appreciates Before Bank of Canada Decision

Jan. 17 (Bloomberg) -- Canada’s dollar approached a 2 1/2 -year high against the greenback as investors awaited tomorrow’s interest-rate announcement by the Bank of Canada.

The so-called loonie appreciated versus 14 of its 16 most- traded counterparts as a government report showed net foreign purchases of Canadian securities in November and Finance Minister Jim Flaherty unveiled changes to mortgage rules aimed at tightening record household borrowing. Governor Mark Carney will leave the key rate unchanged at 1 percent, according to all 32 economists surveyed by Bloomberg. U.S. markets are closed today for the Martin Luther King Jr. holiday.

The loonie appreciated 0.3 percent to 98.75 cents per U.S. dollar at 10:30 a.m. New York time, compared with 98.90 cents on Jan. 14. The currency reached 98.49 cents on Jan. 12, the strongest level since May 2008. One Canadian dollar buys $1.0126. The U.S. dollar has dropped about 0.7 percent against the Canadian dollar in the past five trading days.

“Many players are awaiting the tone of Carney’s comments to better gauge the timing of rate increases,” Firas Askari, head currency trader at Bank of Montreal’s BMO Capital unit, said via e-mail from Toronto. “With New York closed, it’s pretty illiquid today.”

Central bank policymakers announce their decision tomorrow at 9 a.m. in Ottawa. The Bank of Canada has kept rates on hold since September, citing falling exports and slower global growth expectations.

Mortgage Move

The Canadian dollar has climbed more than 6 percent and strengthened beyond parity with the U.S. dollar since Carney raised the key rate from a record low of 0.25 percent on June 1. The U.S. purchases about 70 percent of Canada’s exports, which represent one-third of the world’s 11th-largest economy.

Canada will shorten the maximum amortization period for government-insured mortgages to 30 years from 35 years, and lower the maximum amount homeowners can borrow against the value of their homes to 85 percent from 90 percent, Flaherty said in a statement released today. The changes take effect March 18.

Flaherty and Carney have been urging households to be wary of taking on too much debt after data showed the indebtedness of Canadians surpassed U.S. levels for the first time in 12 years.

Foreigners bought a net C$8.01 billion ($8.11 billion) of Canadian securities in November, almost all of it in bonds, approaching an annual record. Economists predicted a total C$9 billion net purchase of Canadian securities, according to the median of five estimates by Bloomberg News.

Foreign investors bought C$7.05 billion of bonds in November, the 23rd net purchase in a row, including C$3.2 billion of federal government bonds and C$2.4 billion of corporate debt. Non-residents also bought C$836 million of money-market paper and C$115 million of Canadian stocks, Statistics Canada said today in Ottawa.

“Continued foreign inflows will provide the currency with a lift,” David Tulk, senior macro strategist at TD Securities in Toronto, wrote in a note to investors today.

--Editors: Keith Campbell, Matthew Brown.