Dollar May Extend Gain Versus Canadian Dollar on Oil Decline

Aug. 26 -- The dollar may extend its gain versus the Canadian dollar, the Norwegian krone and the Brazilian real after a drop in oil prices reduced demand for the currencies of commodity producers.

The greenback pared its decline versus the euro yesterday as the Treasury’s sale of two-year notes received higher demand from a group including foreign central banks. The yen appreciated against all of its major counterparts including the real and South African rand as U.S. stocks pared increases, encouraging investors to take refuge.

“We saw the Canadian dollar under a little bit of pressure in the early afternoon here as the U.S. dollar was posting some decent gains,” said JP Blais, vice president of foreign- exchange sales at BMO Capital Markets in Toronto. “With the equity market losing a little bit of the steam that it had, oil is having a harder time making some new highs.”

The dollar was little changed at $1.4298 per euro at 6:15 a.m. in Tokyo. The U.S. currency traded at 94.19 yen after dropping 0.4 percent. The yen was at 134.67 per euro following an increase of 0.5 percent.

The Canadian dollar declined for the first time in six days, weakening 1 percent to C$1.0868 per U.S. dollar. The drop this week will probably be capped at C$1.0975 versus the greenback, according to Blais.

The currency known as the loonie also fell as Timothy Lane, deputy governor of the Bank of Canada, said in a speech in Kingston, Ontario, that the strength of the currency presented an “important risk” to growth. The Canadian dollar advanced 20 percent from a four-year low reached in March.

Weaker Krone

The krone dropped 0.7 percent to 6.0501 versus the dollar, while the real lost 1.1 percent to 1.8410. Crude oil for October delivery decreased 3.5 percent to $71.76 a barrel, paring its rally this year to 60 percent. Norway is the fifth-largest oil producer, and oil is Canada’s biggest export. Commodities account for two-thirds of Brazil’s exports.

The yen appreciated 1.5 percent to 50.66 versus the real and 0.5 percent to 12.05 against the rand as U.S. stocks pared gains, reducing demand for higher-yielding assets. Japan’s target lending rate of 0.1 percent compares with 8.75 percent in Brazil and 7 percent in South Africa.

The euro rose earlier versus the dollar on speculation a German report today will show the fifth monthly expansion in business confidence. Government spending helped lift Germany out of its worst recession since World War II, according to a Federal Statistics Office report yesterday confirming a 0.3 expansion in the second quarter.

‘European Recovery’

“I’m more interested in what’s happening in Europe,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “The U.S. is going to settle for the next few months. The European recovery is coming more quickly than people expected.”

The dollar declined to near the lowest level versus the euro in two weeks on reduced demand for safety as U.S. economic reports showed a gain in consumer confidence and slower drop in home prices. The dollar traded within a fifth of a cent of $1.4376 reached on Aug. 21, the weakest since Aug. 7.

“This data was firm,” said Meg Browne, a currency strategist at Brown Brothers Harriman & Co. in New York. “The euro got to that $1.4360 level, it wasn’t really able to break to new highs.”

The S&P/Case-Shiller index of property values in 20 U.S. metropolitan areas decreased 15.4 percent in June from a year earlier after a 17 percent drop in the 12 months ended in May. The median forecast of 31 economists in a Bloomberg News survey was for a 16.4 percent reduction.

The New York-based Conference Board reported that its consumer confidence index increased to 54.1 in August from 47.4 in the previous month. The median forecast of 67 economists in a separate Bloomberg News survey was for an advance to 47.9 from a previously reported 46.6.

Indirect bidders, which include foreign central banks, bought 49.4 percent of the $42 billion in two-year Treasury notes auctioned today, up from 33 percent in July.