Canada Dollar Rises to 1-Year High as Jobs Gain Fuels Rate Bets

The Canadian dollar rose to a one- year high versus its U.S. peer as domestic employers added more jobs than forecast, bolstering speculation Bank of Canada Governor Mark Carney will raise its target interest rate.

Canada’s currency added to a weekly gain as U.S. government reports showed payrolls increased less than projected in August and the unemployment rate declined as more Americans left the labor force, boosting wagers the Federal Reserve will soon seek to stimulate economic growth with asset purchases under its quantitative-easing strategy. Commodities and stocks rallied on increased risk appetite. Carney, in a speech near Calgary, said a raw-materials boom wasn’t hurting the nation’s economy.

“The Canadian number is above expectations,” Camilla Sutton, chief currency strategist at Bank of Nova Scotia’s Scotiabank unit in Toronto. “The U.S. number is a disappointment, which increases the risk of quantitative easing, which is positive for risk assets.”

Canada’s currency, nicknamed the loonie for the image of the waterfowl on the C$1 coin, appreciated 0.4 percent to 97.86 cents per U.S. dollar at 5 p.m. in Toronto. It touched 97.66, matching the strongest since Sept. 2, 2011, and gained 0.8 percent this week. One Canadian dollar buys $1.0219.

Calling Scotiabank’s strategists “medium-term bulls” on the loonie, Sutton said the break below 98.00 would open up 96.77. The last time the loonie traded that strong was Aug. 4, 2011.

Crude-oil futures advanced for a third day, gaining 0.8 percent to $96.30 a barrel in New York after rising as much as 1.1 percent. Futures have risen 25 percent from the year’s low of $77.28 a barrel on June 28. Oil is Canada’s biggest export.

The Standard & Poor’s 500 Index (SPX) gained 0.4 percent and is up 2.2 percent this week.

Futures Bets

The difference in the number of wagers by hedge funds and other large speculators on an advance in the Canadian dollar compared with those on a drop, known as net longs, rose to 66,555 contracts in the five days ended on Sept. 4, up from net longs of 60,936 a week earlier, according to Commodity Futures Trading Commission data compiled by Bloomberg.

“The economy is chugging along quietly,” Firas Askari, head currency trader in Toronto at Bank of Montreal (BMO), said in a telephone interview. “The Canadian jobs number is lukewarm, at best, but we’re not seeing a huge slowdown in Canada, either.”

Employment rose by 34,300 following the July decrease of 30,400, Statistics Canada said today in Ottawa, and the jobless rate was unchanged at 7.3 percent. Economists surveyed by Bloomberg News projected a 10,000 gain in jobs and 7.3 percent unemployment, according to median forecasts.

A ‘Caricature’

Speaking at the Spruce Meadows Round Table, Carney rejected the idea that the country is suffering from so-called Dutch disease, referring to the Netherland’s uneven economy in the 1960s after natural-gas deposits were discovered in the North Sea. The resulting rise in its currency was blamed for the demise of Dutch manufacturing.

Carney said any Dutch disease accusation a “caricature” that would limit the beneficial development of the Alberta oil sands, he said in the text of the speech.

Canada’s dollar has strengthened 60 percent against the U.S. dollar over the past decade and the central bank’s index of commodity prices has more than doubled, while manufacturing employment has fallen to 1.8 million from 2.3 million, or by 22 percent.

The Bank of Canada remains hawkish on interest rates, reiterating Sept. 5 that borrowing costs may need to rise to prevent inflation from accelerating. Carney said “some modest withdrawal of the present considerable monetary policy stimulus may become appropriate.”

The central bank’s key interest rate has been 1 percent for two years, the longest pause since the 1950s.

Employment Outlook

Canada’s jobless rate will remain stalled over the next year, ending 2013 at 7.2 percent, according to economists surveyed by Bloomberg. Prime Minister Stephen Harper said in an interview with Bloomberg yesterday in Vancouver there will be “sluggish” growth for an extended period in much of the global economy.

The U.S. economy added 96,000 workers last month following a revised 141,000 rise in July that was smaller than initially estimated, Labor Department figures showed today in Washington. The median estimate of 92 economists surveyed by Bloomberg called for a gain of 130,000. Unemployment unexpectedly fell to 8.1 percent, and hourly earnings were unchanged.

The Fed, which meets Sept. 12-13, bought $2.3 trillion of securities from 2008 to 2011 in two rounds of quantitative easing. It also has kept its benchmark rate at zero to 0.25 percent since December 2008, in the midst of the worst financial crisis since the Great Depression.

‘Risk Rally’

The loonie decreased 0.6 percent today, the second largest decline after the U.S. dollar’s 1.1 percent drop, among 10 developed-nation currencies tracked by Bloomberg Correlation- Weighted Currency Indexes. The euro rose 0.3 percent and Sweden’s krona led gainers with a 1.2 percent rally.

The Canada dollar is “lagging the broader risk rally and may struggle a little to differentiate itself from the U.S. dollar in the near term,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank (TD)’s TD Securities unit, wrote in a note to clients.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Katia Dmitrieva in New York at edmitrieva1@bloomberg.net

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

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