Canadian Dollar Advances From Lowest Since February on Record Gain in Jobs

Canada’s dollar rose from the lowest level in almost three months as a record increase in employment last month encouraged speculation that the central bank will raise borrowing costs as early as June.

The loonie was headed for its biggest weekly drop since January as concern European officials aren’t doing enough to contain Greece’s debt turmoil discouraged demand for currencies tied to economic growth.

“Everyone has dismissed the data and is much more concerned with the macro issues overhanging the market,” said Steve Butler, director of foreign-exchange trading in Toronto at Bank of Nova Scotia, Canada’s third-largest lender.

The Canadian dollar appreciated 0.9 percent to C$1.0434 per U.S. dollar at 4:16 p.m. in Toronto, from C$1.0526 yesterday, when it declined to C$1.0734, the weakest level since Feb. 9. It earlier appreciated as much as 1.8 percent to C$1.0339 in the biggest intraday advance since Nov. 9.

The loonie, as the currency is known for the image of the aquatic bird on the C$1 coin, pared its weekly decrease to 2.4 percent, still the biggest drop since the five days ended Jan. 22. The currency fell yesterday the most since June 2009 as stocks and commodities plunged after European Central Bank President Jean-Claude Trichet said at a news conference that policy makers didn’t discuss whether they should purchase government bonds as the euro area’s budget crisis spreads.

Canadian Jobs

Canada’s economy gained 108,700 jobs in April after an increase of 17,900 in the previous month, Statistics Canada said today in Ottawa. The median forecast of 22 economists in a Bloomberg News survey was for an increase of 25,000. Canada’s unemployment rate dropped to 8.1 percent from 8.2 percent.

The looney remained higher after a report showing U.S. employment increased in April by the most in four years. America is Canada’s biggest trading partner.

Traders reinstated bets that the Bank of Canada will raise interest rates next month. A drop in the June 2010 bankers’ acceptances contract pushed the yield up 10 basis points to 0.845 percent, erasing yesterday’s decrease of 9 basis points.

“A huge, huge Canadian employment number sent Bax contracts down,” said David Love, a trader of interest-rate derivatives in Montreal at the brokerage Le Groupe Jitney Inc., referring to the price of the contract, which moves inversely to the yield and falls as expectations for borrowing costs increase. “They would be making new lows today if we hadn’t had the spike yesterday,” Love said.

Bax Contract

The yield on the so-called Bax contract surged to 0.94 percent on April 20, from 0.78 percent the day before, after the central bank dropped a pledge to keep its record low 0.25 percent target lending rate unchanged through June.

Government securities slumped, pushing the yield on the 10- year bond up 3 basis points, or 0.03 percentage point, to 3.49 percent after yesterday’s decrease of 7 basis points. The price of the 3.5 percent security maturing in June 2020 decreased 23 cents to C$100.04.

The Canadian dollar, tracking the euro, briefly erased its gain today before reviving on speculation the ECB will come to the aid of banks threatened by budget turmoil.

One-month implied volatility on the U.S. dollar versus the Canadian currency, used to price options, rose today to 17.3 percent, the highest since June 2009, on concern the European debt crisis may stall the global recovery. A higher reading indicates a greater chance of currency fluctuation, which may erode profits in investments in higher-yielding assets.

‘Heightened’ Concern

“It reflects the heightened level of concern and uncertainty in the markets at the moment,” said Shaun Osborne, chief currency strategist in Toronto at Toronto Dominion Bank, Canada’s second-largest lender. “It suggests the market is worried we’ll continue to see the big swings in the spot rate that we’ve seen over the past couple of days.”

While the loonie-greenback rate is a “slave to the risk sentiment in the market,” Osborne still expects the Canadian dollar to “outperform on the crosses,” referring to the other most-traded currencies including the euro. A gain of 108,700 jobs “has to count for something,” he said.

To contact the reporters on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net; Mary Childs in New York at mchilds5@bloomberg.net

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