July 22 (Bloomberg) -- The Bank of Canada learned about suspected leaks of economic data weeks before unusual movements in currency markets triggered a security review by Statistics Canada, documents obtained by Bloomberg News show.

The 54 pages received through access-to-information laws show discussions from April 17 to May 28 among senior Bank of Canada staff, including Deputy Governors David Longworth and Pierre Duguay. The central bank received e-mail and phone messages suggesting that unemployment and inflation reports may have been leaked for months.

While Statistics Canada said it investigated its procedures twice during May without finding anything wrong, the documents show that investor concern existed before then and the bank was aware of it. The central bank received a tip on April 17 about possible leaks that may have distorted the $38.5 billion-a-day Canadian dollar market as far back as January.

“It appears at first glance as if someone getting a hold early of these sensitive numbers,” said an external e-mail received that day by Rob Ogrodnick, a senior analyst at the bank’s Toronto office. The identity of the sender was redacted, along with other parts of the documents.

Speculation about a leak increased on May 8 because the Canadian dollar appreciated by as much as 0.7 percent in the hour before the jobs report was released. The currency rose as much as 1.8 percent after the report came out, showing a surprise employment gain.

‘Constantly’ Hear of Leaks

“As you say, the number was wrong in numerical terms, but it was close in sprit, i.e. much better than expected and actually positive,” Paul Chilcott, a director in the bank’s financial markets department, wrote to Longworth on May 8, referencing an e-mail sent to the bank.

Longworth received an e-mail following that release in which an unidentified person wrote that they “constantly hear that cad data has been leaked, like today.” In one reply, Janone Ong, senior analyst in the bank’s market analysis and operations division, wrote that another person had called to say the same thing.

Scott Kinnear, principal analyst in the same division, wrote that a person “called before the release and said the rumour was for a gain of 10K.” The report showed a gain of 35,900 jobs, compared with economists’ expectations for a loss of 50,000 positions.

‘Heightened Activity’

“The Bank of Canada does not have the authority to make the determination as to whether there was a data leak at Statistics Canada,” central bank spokesman Jeremy Harrison said in an interview yesterday.

“A few market participants did communicate this rumor to Bank staff,” he said. “However, this did not constitute a widely held perception. It is common to see heightened activity in forex markets ahead of a major data release, as market participants take positions based on their expectations.”

The e-mails obtained from the bank also show Statistics Canada “urgently” asked the central bank on May 19 for minute- by-minute Canadian-dollar trading data for the days when jobs reports were released, going back to Dec. 5.

The monthly inflation and employment reports are the only ones released by Statistics Canada at 7 a.m. New York time, before most North American trading has begun and when volume in the Canadian dollar market is lower.

‘Suspicious Movements’

During the hour before publication of most economic data reports, Bloomberg News and other services get advance copies in a press room at Statistics Canada’s Ottawa headquarters, under condition the information isn’t disseminated early. Other government departments receive copies of some data the day before.

“There are always rumors, but there have been suspicious movements of the Canadian dollar, especially before employment data,” said David Watt, a senior foreign exchange strategist at RBC Capital Markets in Toronto, a unit of Canada’s biggest bank.

“If true, it creates a situation where somebody is making an inordinate profit before the reports,” Watt said. “I didn’t phone the Bank of Canada, but I was tempted to.”

Finance Minister Jim Flaherty added to questions about who receives advance figures when he commented about employment reports before their release earlier this year, Watt said. The day before the March employment report, which showed a loss of 61,300 jobs, Flaherty told reporters the data wouldn’t be “encouraging.”

‘Potential Abuse’

Flaherty “never speaks to reporters once he has the information,” which he receives the day before, said Mike Storeshaw, Flaherty’s director of communications. “He has had things to say about the market expectation in the past, but when he has the information, he’s obviously very careful with it, and it’s kept confidential.”

One e-mail to the bank, with the subject line “Potential abuse of Cad dollar,” said one or more people were “reporting that in the past three months they have noticed this ahead of CPI and unemployment releases.”

Ogrodnick also wrote on May 8 to colleagues, including department chief Donna Howard, that he had received a call from a person who reported seeing “suspicious flows on the retail side about 45 minutes before the official 7 am release.” The person said “the flows at these retail houses was 10 times larger than what they would normally see,” Ogrodnick wrote.

The documents don’t give clear evidence of impropriety in the Canadian-dollar market, or indicate that police were asked to investigate further.

Security Review

Royal Canadian Mounted Police spokeswoman Sgt. Pat Flood declined to say if an investigation is going on and the Bank of Canada’s Harrison said he wasn’t aware of one.

Statistics Canada said May 8 it would review its security procedures. Less than a week later, the agency said no leak had come from its employees. The probe didn’t cover the advance copies delivered the day before to other government departments, officials said in May.

The statistics agency also said on May 20 it investigated security measures for a second time without finding any breach, after speculation that the inflation report may have been released early that day.

Statistics Canada’s press office declined comment on this story, and referred to the results of their investigations.

A similar access-to-information request with the Department of Finance returned four pages. One page was a partly redacted May 21 memo that recapped the situation.

To contact the reporters on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net; Greg Quinn in Ottawa at gquinn1@bloomberg.net.

Last Updated: July 22, 2009 13:20 EDT