Canada Dollar Holds Near $1 on Demand for Nation's Commodities

Sept. 24 (Bloomberg) -- Canada's dollar traded near $1, the highest since 1976, and gained against 15 other major currencies as climbing prices for the nation's commodity exports brightened the economic outlook.

The currency rose as gold futures approached the highest since 1980 on the New York Mercantile Exchange. Copper also advanced. Commodities account for about half of Canada's exports.

``Strong commodity prices, a healthier economy and the weakening U.S. dollar are the main factors that are supporting the currency,'' said Maria Jones, a currency strategist at TD Securities in Toronto.

Canada's dollar traded at 99.78 U.S. cents at 5:13 p.m. in Toronto, after touching $1.0029. The currency is up 16.4 percent this year, the most against the U.S. dollar among the 16 most- actively traded currencies. It's gained 6.3 percent this quarter, and climbed above $1 on Sept. 20 for the first time since 1976. One U.S. dollar equals C$1.002.

Canada has benefited from rising demand for copper, gold, wheat and oil from the U.S. and emerging economies such as India and China. The country is the world's largest producer of uranium, the second-biggest exporter of natural gas, and boasts the largest pool of oil reserves outside the Middle East.

Futures Bets

Futures show hedge funds and large speculators held a record net 79,828 contracts betting on a gain in the currency as of Sept. 18 on the Chicago Mercantile Exchange, up 36 percent from the prior week, according to the Washington-based Commodity Futures Trading Commission.

The U.S. dollar touched a record low against the euro today and declined versus the yen on speculation reports will show U.S. economic growth is losing momentum, adding to pressure on the Federal Reserve to cut interest rates again. A National Association of Realtors report tomorrow is forecast to show home resales fell in August to an annual rate of 5.49 million, the lowest in five years, according to the median estimate in a Bloomberg News survey.

The Fed cut its target for the rate on overnight loans between banks by a half-percentage point to 4.75 percent on Sept. 18.

Canadian dollar gains may be limited before a speech and a press conference tomorrow by Bank of Canada Governor David Dodge.

``All eyes are on the press conference,'' said Matthew Strauss, a senior currency strategist at RBC Capital Markets in Toronto. ``There is a risk of a sell-off in the Canadian dollar if he comes out and mentions explicitly that the currency's rise was too sharp.''

As the Canadian dollar strengthens, the nation's exports become more expensive for purchasers using U.S. dollars.

The currency's climb to parity comes on speculation the Bank of Canada will hold its key lending rate at 4.5 percent this year, while the Fed cuts its target further.

The yield on the benchmark two-year Canadian government bond fell 3 basis points, or 0.03 percentage point, to 4.15 percent. The price of the 4.25 percent security maturing in December 2009 rose 6 cent was C$100.19. Bond yields move inversely to prices.