Canada's Dollar Exceeds Par on the Outlook for Rate Advantage

The Canadian dollar rose above par against the U.S. currency for the first time in three weeks on speculation Canada's interest-rate advantage over the U.S. may widen.

Canada's dollar strengthened versus 14 of the 16 most- traded currencies before the Federal Reserve decision tomorrow. Policy makers may cut the U.S. benchmark lending rate by 50 basis points to 3 percent, according to futures prices quoted on the Chicago Board of Trade. That would widen the rate gap to 1 percentage point, with Canada's borrowing costs at 4 percent.

``It's a part of a broad-based U.S. dollar weakness before the rate meeting,'' said Matthew Strauss, a senior currency strategist in Toronto at RBC Capital Markets. ``Currencies linked to commodity exports are generally gaining in this environment.''

The currency, known as the loonie after the image of the bird on its one-dollar coin, rose 0.4 percent to 99.95 Canadian cents per U.S. dollar at 4 p.m. in Toronto, from C$1.0035 yesterday. It touched 99.44 Canadian cents, the strongest since Jan. 4. One Canadian dollar buys $1.0007.

The U.S. dollar declined against 10 of the 16 most-traded currencies. The Canadian dollar gained the most, 0.8 percent, against the Swiss franc today.

The Canadian dollar gained 1.9 percent last week, wiping out losses it suffered earlier this month.

Interest-rate futures traded on the Chicago Board of Trade show 78 percent odds the Fed will lower borrowing costs a half- percentage point tomorrow and a 22 percent chance of a quarter- percentage point cut. The odds were 80 percent and 20 percent, respectively, on Jan. 22.

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