Canadian Dollar Drops as Employment Reports Dim Nation's Economic Outlook

Canada’s dollar dropped against all of its major counterparts as reports showed the nation gained fewer jobs in November than economists forecast and the U.S. unemployment rate unexpectedly increased.

“We’re seeing the Canadian dollar being punished on the U.S.-economic association, given the much worse than expected payrolls data,” Sacha Tihanyi, a currency strategist in Toronto at Bank of Nova Scotia’s Scotia Capital unit, wrote via e-mail. “The Canadian jobs data was also weak, but the market held judgment until the U.S. numbers came in. Definitely Canadian dollar-negative.”

The loonie, as Canada’s currency is also known, depreciated 0.1 percent to C$1.0039 per U.S. dollar at 5 p.m. in Toronto, from C$1.0026 yesterday. One Canadian dollar buys 99.61 U.S. cents. The Canadian dollar slid 1.7 percent to 82.21 yen.

Canada’s currency posted its first weekly gain against the greenback since Nov. 5, rising 1.7 percent. Futures on crude oil, the nation’s biggest export, rallied 1.6 percent to $89.41 a barrel.

Traders pared bets on the prospect for an increase in interest rates after the jobs reports. Yields on the March 2011 bankers’ acceptances contract, a gauge of expectations for short-term borrowing costs, dropped today six basis points, or 0.06 percentage point, to 1.45 percent. The yields ended last week at 1.53 percent.

‘Much Weaker’

“The much weaker than anticipated U.S. employment data has really put a bid into the market,” David Love, a trader of interest-rate derivatives in Montreal at the brokerage Le Groupe Jitney Inc., said by e-mail, referring to a rise in the contract’s price, which moves inversely to the yield. “There’s still a little room to the upside, but we’re getting close to resistance levels.” Resistance denotes the upper boundary of a trading range.

So-called Bax contracts average about 20 basis points above the central bank’s overnight target, Bloomberg data since 1992 show. Hedge funds and money managers use the contracts to hedge against interest-rate exposure and make bets.

Citing a weaker U.S. outlook, the Bank of Canada held its main policy rate at 1 percent in October after three successive increases of a quarter-percentage point beginning June 1. Policy makers will keep the rate steady when they meet Dec. 7, according to all 22 economists in a Bloomberg News survey.

Government Bonds

The yield on Canada’s 10-year government bonds was fell 2 basis points to 3.18 percent. The price of the 3.5 percent security maturing in June 2020 rose 13 cents to C$102.58. The yield touched 3.25 percent yesterday, the highest level since July 28.

Ten-year bonds yielded 18 basis points more than the equivalent-maturity U.S. security. The yield advantage has narrowed from 37 basis points on Oct. 7, which was the most since January 2009, according to Bloomberg data.

Canadian employers added 15,200 jobs in November after an increase of 3,000 in the previous month, Statistics Canada said today in Ottawa. The median forecast of 24 economists in a Bloomberg News survey was for a gain of 19,800. The unemployment rate unexpectedly dropped to 7.6 percent from 7.9 percent.

U.S. payrolls increased by 39,000, less than the most pessimistic projection of economists surveyed by Bloomberg News, after a revised 172,000 advance in the prior month, Labor Department figures showed. The jobless rate rose to 9.8 percent, the highest level since April.

The loonie had yesterday its biggest two-day rally against its U.S. counterpart since May as a gain in stocks and commodities boosted assets related to economic growth.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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