Canadian Dollar Declines as Jobless Rate Unexpectedly Increased in October

Canada’s dollar dropped against most of its major counterparts after a government report showed the jobless rate unexpectedly increased in October as the nation’s employers eliminated positions.

The Canadian currency slid for the first time in three days versus its U.S. counterpart on reduced demand for risk after Germany’s Chancellor Angela Merkel said Group of 20 leaders were unable to agree on International Monetary Fund resources. Canada’s 10-year bonds rallied on the lost jobs, with yields headed for their biggest weekly decrease since December 2008.

“It’s a miss in a very meaningful way,” Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, said in a telephone interview, referring to the employment figures. “This is likely to contribute to some Canada lagging.”

The loonie, as the Canadian currency is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 1.2 percent to C$1.0188 per U.S. dollar at 5 p.m. Toronto time, extending its first weekly drop since September to 2.7 percent. It touched C$1.0229, the weakest level since Oct. 20. One Canadian dollar buys 98.16 U.S. cents.

The U.S. dollar appreciated above C$1.02 before edging back below that level over three straight sessions, forming what technical traders refer to as a triple top.

Triple Top

“The triple top above C$1.02 over the last three days becomes an important level to break this morning to regain upward momentum,” Matt Perrier, director of foreign exchange at Bank of Montreal’s BMO Capital Markets in Toronto, wrote in a note to clients after the Canadian jobs report, referring to upward momentum for the greenback.

Canadian two-year government bonds rose for the first time in three days, pushing yields down seven basis points, or 0.07 percentage point, to 0.93 percent. The difference in yields with equivalent-maturity U.S. securities narrowed five basis points to 71 basis points.

Ten-year bond yields plunged 27 basis points this week to 2.16 percent in the biggest five-day decrease since the depths of the global financial crisis in December 2008. The price of the 3.25 percent securities maturing in June 2021 increased C$2.38 to C$109.38.

Employment fell by 54,000 jobs last month after an increase of 60,900 positions in September, Statistics Canada said today in Ottawa. The median forecast of 27 economists in a Bloomberg News survey was for an advance of 15,000. The unemployment rate rose to 7.3 percent from 7.1 percent, where economists had expected it to stay.

Weaker Loonie

The Canadian dollar dropped this week on increased speculation the Bank of Canada will lower borrowing costs following the jobs report.

“People may start to recognize that the Bank of Canada may be more inclined to cut rates sooner rather than later,” said National Bank’s Spitz.

Chances of an interest rate cut at the central bank’s Dec. 6 meeting rose to 18 percent after the jobs figures were released today, from 14 percent yesterday and 11 percent at the end of last week, according to Bloomberg calculations based on overnight index swaps.

Bank of Canada Governor Mark Carney reiterated on Nov. 2 that the outlook for the Canadian economy has weakened since July. The central bank held its target lending rate at 1 percent last month.

U.S. Employment

The loonie briefly pared losses today after a U.S. Labor Department report showed the unemployment rate decreased to a six-month low of 9 percent from 9.1 percent. The U.S. is Canada’s biggest trading partner.

Canada’s currency rallied 1 percent during the week ended Oct. 7, when the statistics agency reported Canada added more than four times as many jobs in September as forecast.

U.S. stocks fell today, with the Standard & Poor’s 500 Index declining 0.6 percent, extending the weekly loss to 2.5 percent. The correlation coefficient between the gauge of U.S. equities and the Canadian dollar was 0.9315, the strongest relationship since June 2010, when it was 0.9339. A reading of 1 indicates the measures move in lockstep.

Global policy makers are awaiting more details of a week- old European rescue plan before they commit fresh cash to the IMF, which could then lend to the region’s bailout facility, Merkel said at the end of the G-20 summit in Cannes, France. French President Nicolas Sarkozy said it may take until February for an agreement.

Carney was named to head the Financial Stability Board, the body charged by the G-20 to coordinate global financial reform and monitor progress.

Canada’s dollar will strengthen to parity by the end of this year and 98 cents per U.S. dollar by the close of 2012, according to the median forecast of 30 economists and analysts in a Bloomberg survey.

To contact the reporter on this story: Chris Fournier in Halifax, Nova Scotia, at cfournier3@bloomberg.net

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

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