Canadian Dollar Declines After Worst Jobs Loss Since Recession

The Canadian dollar weakened against the majority of its most-traded peers as the nation lost jobs last month and U.S. payrolls grew less than forecast, fueling speculation the North American economy is slowing.

The currency fell yesterday versus its U.S. counterpart after Canada reported 54,500 fewer jobs in March, the biggest monthly jobs decline since the country was in recession in 2009, driving the unemployment rate up to 7.2 percent from 7 percent. Canada had a net loss of 25,700 jobs in the first three months of the year. Housing starts may have slowed in March, according to a Bloomberg survey of economists before an April 9 report.

“If we are in a period of slower growth and elevated vulnerability, we should see that correlation with financial assets pick up again,” said David Tulk, chief macro strategist at Toronto-Dominion Bank’s TD Securities unit, by phone from Toronto. “If that tone is negative, then the Canadian dollar is likely to remain under a little bit of pressure here, I would say, through to the second quarter.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, was little changed this week at C$1.0176 per U.S. dollar, ending weaker than its 50-day moving average. One loonie buys 98.27 U.S. cents.

Futures Positions

Hedge funds and other large speculators increased their bets the Canadian dollar will decline against the greenback, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers on a decline in the Canadian dollar compared with those on a gain -- so-called net shorts -- was 64,544 on April 2, compared with net shorts of 62,645 a week earlier.

The cost to insure against declines in the Canadian dollar versus its U.S. counterpart rose. The three-month so-called 25- delta risk reversal rate rose to 0.97 percent after reaching 0.89 percent on April 2, matching its lowest in 10 weeks. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

Canada’s 10-year benchmark bonds rose, with yields falling 12 basis points, or 0.l2 percentage point, to 1.75 percent, after touching the lowest level since Dec. 11. The 1.5 percent security maturing in June 2023 gained C$1.08 to C$97.68.

The Bank of Canada will auction C$2.7 billion ($2.7 billion) of securities maturing August 2016 on April 10.

Economic Status

Canada’s jobs figures bring the labor market more in line with other parts of the economy, where output growth slowed to a 0.6 percent annualized pace in the fourth quarter and inflation has lagged the central bank’s 2 percent target since May.

Housing starts in Canada slowed to 175,000 in March from 180,000 the month before, according to a Bloomberg survey of 17 economists.

Bank of Canada Governor Mark Carney has said a rebound in exports and business investment will lead growth through next year, as consumers struggle with record debt loads. The central bank’s March 6 policy statement called for the economy to “pick up through 2013” on its way to 2 percent annual growth.

“The bank will likely have to come down a bit in terms of its expectations for growth,” said Emanuella Enenajor, an economist at CIBC World Markets, by phone from Toronto. “Various indicators we’ve seen through the months of March are beginning to strike a more cautious note and markets are beginning to see that. You’re seeing a selloff in risk assets and you’re seeing the Canadian dollar also weaken.”

Jobs Data

In the U.S., Canada’s largest trading partner, employment expanded by 88,000 jobs, less than the 190,000 jobs forecast in the median estimate of a Bloomberg survey of 87 economists. In the absence of sustained and bigger gains in employment and earnings underscores the Federal Reserve’s view that more progress is needed before record monetary policy stimulus that has devalued the currency can be scaled back.

Fed officials are waiting for sustained signs of job-market resilience before winding down their $85 billion of monthly bond purchases. Automatic budget cuts that will take $109.3 billion from the U.S. government this year went into effect March 1.

“There’s no question that we’re in at least a slowing period for the Canadian economy and that’s going to drag on the Canadian dollar,” said Mark Frey, chief market strategist at Cambridge Mercantile Group, a corporate currency broker, by phone from Victoria British Columbia. “You pair that with some very dovish policy from the Bank of Canada from the beginning of March and all of a sudden we have an arrangement where the Canadian dollar is going to be fundamentally weak versus the U.S. dollar for the next six to nine months and as we get to the close of the year.”

The loonie fell 0.7 percent in the past week against nine- developed nation currencies tracked by the Bloomberg Correlation Weighted Index. The U.S. dollar also fell 0.7 percent and the euro rose 0.8 percent.

To contact the reporter on this story: Ari Altstedter in Toronto at aaltstedter@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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