Traders are betting the Canadian dollar fell too far, too fast in its worst start to a year in more than four decades, as rising commodities prices and a forecast budget surplus damp speculation for interest-rate cuts.
The cost to insure against the loonie weakening further dropped to the lowest in three years, and analysts are downgrading the currency at the slowest pace since October, when the Bank of Canada began a policy shift that sent it tumbling to a 4 1/2-year low of C$1.1224 per U.S. dollar on Jan. 31. Canada’s dollar has gained more than 2 percent since then to C$1.0981, and is forecast to end the first quarter at C$1.10, according to the median estimate in a Bloomberg survey of 64 respondents.
Finance Minister Jim Flaherty presented a budget this week that pledged a return to surplus in 2015, bolstering the nation’s top AAA credit rating and easing speculation the central bank will need to step in to support the economy. The price of crude oil, Canada’s largest export, climbed to the highest level in four months yesterday, while a gauge of global commodities reached the highest this year.
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