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Canadian Dollar Climbs Along With Stocks After U.S. Private Jobs Increase
Canada’s dollar climbed versus all its 16 most-traded counterparts after a U.S. Labor Department report showed employers added more jobs than anticipated, bolstering the outlook for higher-yielding assets.
Canada’s currency rose 1.1 percent since Aug. 27, the first weekly increase in a month. The MSCI World Index, a gauge of equities in 24 developed nations, gained 1.1 percent and the Standard & Poor’s/TSX Composite Index rose 0.2 percent. Bank of Canada policy makers meet Sept. 8 in Ottawa to decide whether to raise interest rates for the third time since June 1.
“The data looks pro-risk,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit, wrote in an instant message. “Given the strong inverse correlation between equities and the U.S. dollar, we should look for the U.S. dollar to trade a little softer here.”
The Canadian currency strengthened 1.3 percent to C$1.03384 per U.S. dollar at 4:19 p.m. in Toronto, after touching C$1.0383, the strongest level in two weeks, compared with C$1.0524 yesterday. It earlier dropped as much as 0.4 percent. One Canadian dollar buys 96.31 U.S. cents.
“Technically, we should trade lower, below C$1.0475,” Osborne wrote. “But the depth of support on dips has been solid so far this week.” Support refers to the lower boundary of a trading range, in this case for the U.S. dollar, where buy orders may be clustered.
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Private payrolls that exclude government jobs increased 67,000, after a revised 107,000 increase in July that was more than initially estimated, Labor Department figures in Washington showed today. The median estimate of economists surveyed by Bloomberg News called for a gain of 40,000. Overall employment fell 54,000 for a second month and the unemployment rate rose to 9.6 percent as more people entered the labor force.
“The data definitely helps the market get back on-side of the underlying fundamental current for Canada,” Sacha Tihanyi, a currency strategist in Toronto at Bank of Nova Scotia’s Scotia Capital unit, wrote via e-mail.
He predicted the central bank will raise its policy rate next week. “Taylor-rule type models suggest the Bank of Canada should be hiking rates,” Tihanyi wrote, referring to guidelines developed by Stanford University economist John Taylor that use the divergence between optimal levels of inflation and unemployment to estimate where the benchmark rate should be.
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The yield on December 2010 bankers’ acceptances, the most- active contract, jumped eight basis points to 1.21 percent after the jobs report, the highest since Aug. 19. The yield is a barometer of short-term rate expectations.
“The Bank of Canada will tighten next week on the grounds that despite slowing overall growth, domestic demand in Canada has remained quite resilient,” Toronto-Dominion Bank’s Osborne wrote. “The economy can certainly deal with a 1 percent overnight rate at the moment, regardless of the international context.”
Government bonds slumped, sending the yield on benchmark two-year bonds up 10 basis points, or 0.1 percentage point, to 1.38 percent. The price of the 2 percent security due September 2012 dropped 20 cents to C$101.21.
Canada’s benchmark two-year yields reached an 18-month high 2.07 percent in April, before the European debt crisis kicked off concern the global economic recovery was floundering, sending investors scrambling for safety. The yield slumped to as low as 1.16 percent on Aug. 24.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
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