Canada Dollar Gains After Jobless Rate Falls to Four-Year Low

The Canadian dollar traded at an almost two-week high against the U.S. dollar after the nation’s jobless rate unexpectedly declined to a four-year low, countering recent signs of slowing economic growth.

The currency rose as much as 0.3 percent versus the U.S. dollar as employers added 39,800 workers to payrolls in December, lowering the unemployment rate to 7.1 percent from 7.2 percent the previous month, Statistics Canada said in Ottawa. Royal Bank of Canada forecast the central bank may boost its interest-rate target twice this year.

“There’s plenty of room for the currency to move higher -- payroll numbers are always a good driver,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada (NA), by phone from Toronto. “The market was absolutely looking for a weaker number for Canada so the move up was a major beat and has pushed the Canadian dollar higher.”

The Canadian dollar, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, ended little changed at 98.72 cents per U.S. dollar after earlier rising to 98.48 cents. It touched 98.32 cents on Jan. 2, which was the strongest since Dec. 18.

The currency fell the most in almost two weeks against its U.S. counterpart yesterday after the Federal Reserve revealed it may end monetary stimulus as early as this year, allowing the currency to appreciate. The loonie rose Dec. 7 to the highest level since October versus its U.S. counterpart as employers added almost six times as many jobs as forecast in November.

Bonds Fall

Canada’s benchmark 10-year bonds ended little changed with the yield at 1.94 percent. The 2.75 percent security maturing in June 2022 fell 12 cents to C$106.96.

The Bank of Canada said it will sell C$3.4 billion ($3.5 billion of five-year notes on Jan. 9. The 1.25 percent securities will mature in March 2018.

Bank of Canada Governor Mark Carney is relying on consumption and business investment to lead an expansion during the next two years, and forecast growth will rebound after slowing to a 0.6 percent annualized pace in the third quarter. Carney reiterated Dec. 4 he may raise interest rates while the U.S. central bank has eased policy to reduce unemployment.

Carney has kept the key lending rate at 1 percent for more than two years even as he maintained a bias to raise them if the economy neared full capacity. He will leave the central bank June 1 to take the same job with the Bank of England.

Rate Forecast

Overnight index swaps show greater odds of a Bank of Canada rate rise this year, with traders assigning a 54 percent chance to a rate increase in October, up from 19 percent two months ago, according to Bloomberg calculations.

RBC forecasts the Bank of Canada will increase rates twice in 2013 to 1.5 percent, in the third and fourth quarters, “but job numbers to close 2012 won’t be the catalyst,” according to a note to clients today.

“We think the bank will have to see a more prolonged pattern of job growth and more optimism from businesses to get them to consider acting on their current tightening bias,” Mark Chandler, head of fixed-income strategy at RBC Capital Markets, said in the note. “The central bank faced a similar situation almost a year ago and maintained that they would not be swayed on policy.”

Canada’s jobless rate fell to 7.1 percent from 7.2 percent and employment rose by 39,800, Statistics Canada said today in Ottawa. None of the 23 economists surveyed by Bloomberg News predicted a drop in the unemployment rate and the gain in jobs was almost double the highest forecast. The rate declined from 7.5 percent over the past year while employment increased by 1.8 percent or by 311,900.

Reserve Currency

“The job gains were in full-time and across most industries so the reaction has been strong buying of the Canadian dollar,” Blake Jespersen, managing director of foreign exchange in Toronto at Bank of Montreal (BMO), said in an e-mailed response to questions. The Canadian dollar will trade in a range near 98.5 per U.S. dollar in the foreseeable future, he said.

The U.S. unemployment rate held at 7.8 percent as employers added workers in December at about the same pace as the prior month.

U.S. payrolls rose by 155,000 workers last month following a revised 161,000 advance in November that was more than initially estimated, Labor Department figures showed today in Washington. The median estimate of 82 economists surveyed by Bloomberg called for an increase of 152,000. The unemployment rate held at 7.8 percent after the November figure was revised up from a previously reported 7.7 percent.

The Canadian dollar has gained 1.4 percent in the past week versus nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The greenback has added 0.3 percent.

To contact the reporters on this story: Ari Altstedter in Toronto at aaltstedter@bloomberg.net; Cecile Gutscher in Toronto at cgutscher@bloomberg.net

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

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