Loonie Hedges Signal Bulls

Bond funds renew hedges on Canadian dollar, expecting currency to strengthen after its worst start to a year since 1972.

After the worst annual start in more than four decades for Canada’s dollar, recent moves by the nation’s money managers suggest it may be about to turn around.

TD Asset Management, which oversees Canada’s second-biggest bond fund; Sprott Asset Management LP; and Franklin Bissett Investment Management say they’re putting on hedges that would protect against the currency strengthening. That marks a switch from earlier in the year, when they unwound, or let lapse, positions in futures contracts or swap agreements as the local dollar plummeted versus its U.S. counterpart.

The Canadian dollar has stabilized since, as the Bank of Canada’s latest statement dropped the mention of a strong currency and noted that the latest readings on economic growth and inflation were stronger than expected. Worse-than-forecast jobs numbers last week kicked off two straight days of declines.

The loonie, as the currency is known for the image of the aquatic bird on the C$1 coin, fell to C$1.1224 per U.S. dollar on Jan. 31, the weakest level since July 2009, and was at C$1.1129 as of 9:30 a.m. in London. One loonie buys 89.86 U.S. cents. The currency is the worst performer among 16 major peers against the U.S. dollar this year, dropping 4.6 percent.

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