Canada Dollar Drops for Fifth Week as Jobs Data Adds to Gloom

Canada’s dollar dropped for a fifth consecutive week in the longest losing streak in a year as speculation a slowing recovery for the nation’s biggest trade partner and Europe’s worsening debt crisis curtailed demand.

The currency touched the lowest since November after a report yesterday showed the U.S. added the fewest jobs in a year. Bank of Canada policy makers meet on June 5, four days after Statistics Canada said growth stagnated in the January-March period as consumer spending increased at the slowest pace in three years, raising the chances of lower interest rates by the end of 2012.

“You had the dual-pronged attack on the Canadian dollar, with worse than expected payrolls and GDP,” said John Curran, senior vice president in Toronto at CanadianForex Ltd., an online foreign-exchange dealer, in a telephone interview. “That plays firmly into the hands of the ‘risk-off’ scenario which is the underlying trade out there because of European concerns.”

Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, slid 1.1 percent to C$1.0410 per U.S. dollar yesterday in Toronto, from C$1.0293 on May 25. The currency touched C$1.0443, the weakest level since Nov. 28. One Canadian dollar buys 96.06 U.S. cents.

Government bond yields fell to record lows as investors sought safety. The price of the benchmark 10-year bond climbed C$1.76 cents to C$110.32, driving the yield down 19 basis points on the week to 1.63 percent. It touched 1.615 percent, the lowest since at least 1950, according to data compiled by the Bank of Canada and Bloomberg.

Century Lows

Thirty-year bond yields fell to 2.197 percent, the lowest since 1991, when Canada first issued the debt, according to the central bank data.

Monthly average yields for bonds with maturities of more than 10 years never fell below 2.55 percent between 1919 and 1989, according to the Bank of Canada. Interest rates on long-term bonds in January 1919, when the data series began two months after the end of World War I, were 5.72 percent.

Bonds rallied and the loonie had its biggest intraday loss this year yesterday after the U.S. Labor Department said payrolls climbed by 69,000 last month, less than the most-pessimistic forecast in a Bloomberg News survey. The median projection called for a 150,000 May advance. The jobless rate rose to 8.2 percent from 8.1 percent.

Canada’s gross domestic product grew 0.1 percent in March, Ottawa-based Statistics Canada said, less than the median economist forecast of 0.3 percent.

‘Bigger Risk’

“Short-term trend momentum remains bullish” for the U.S. dollar versus the Canadian, Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit, wrote in a note to clients yesterday. “We still think the bigger risk is to the topside and a move to C$1.06 at least.”

Investors increased bets the Bank of Canada Governor Mark Carney will lower borrowing costs. Trading suggests the central bank will cut interest rates by 35 basis points by year-end, according to Bloomberg calculations on overnight rate swaps. Canada’s 12-month overnight index swap rate, which is tied to forecasts for the Bank of Canada’s policy rate, fell to 0.865 percent, the lowest level this year.

Investors are waiting to see if there’s any change in language next week from Carney, who said last month interest-rate increases may be necessary as growth and inflation outpace his earlier projections, and as slack disappears from the economy. Policy makers have kept the benchmark rate at 1 percent since September 2010.

Volatility Rises

Implied volatility for one-month options on the Canadian dollar versus the greenback increased yesterday to the highest level since Jan. 6, 10.31 percent, after falling to 6.59 percent on April 30. The five-year average is 12 percent. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings.

The loonie gained 0.8 percent over the past three months against nine developed-nation peers monitored by Bloomberg Correlation Weighted Indexes. The U.S. dollar was up 7.1 percent, and the euro fell 0.7 percent. Australia’s dollar slid 5 percent, and Sweden’s krona lost 3.1 percent.

Crude oil, Canada’s biggest export, fell for a fifth week. June futures dropped 8.4 percent to $83.23 per barrel in New York. Raw materials account for half of Canada’s export revenue.

Although the Canadian dollar may drop further versus the greenback, it stands to gain against the euro, according to Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce.

“It’s tough to be anything but bearish on the euro,” Stretch said by phone yesterday from London. “The politicians have to have their feet literally dragged into the fire before they make the unpleasant decisions. C$1.25 is not an unlikely target point. That’s probably got the majority of juice in it,” compared with other crosses, he said.

The loonie ended yesterday at C$1.2869 versus the 17-nation common currency, little changed on the week.

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

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

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