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Canadian Currency Declines as Gain in Employment Trails Forecast

Canada’s dollar dropped the most in three weeks against its U.S. counterpart after employers added fewer jobs than forecast in April, fueling concern the nation’s economic recovery is slowing.

The currency fell for a second day as the U.S. dollar climbed versus all of its 16 most-traded counterparts amid bets the Federal Reserve may slow its monetary stimulus on signs the economy of Canada’s biggest trading partner is improving. The Canadian dollar rose versus most other major peers. The yen tumbled past 101 to the greenback for the first time since 2009.

“Right now we’re in the broader U.S. dollar movement, so if we really are shifting to a stronger U.S. dollar, I think the Canadian dollar will underperform a bit,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia, by phone from Toronto. “When the U.S. dollar is so strong, it’s going to be hard for the Canadian dollar to break through parity.”

The loonie, as the Canadian dollar is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.3 percent to C$1.0100 per U.S. dollar at 5 p.m. in Toronto, for a weekly loss of 0.2 percent. It slid as much as 0.8 percent, the biggest intraday decline since April 17, to C$1.0152 after approaching parity earlier in the week. One Canadian dollar buys 99.01 U.S. cents.

The currency weakened past its 100-day moving average for the first time in four days. Moving averages, which indicate momentum, are seen by some traders as potential turning points.

Sutton of Bank of Nova Scotia said she expects the loonie to trade in a range of C$1.020 to C$1.025 over the next week.

Bets Trimmed

Futures traders decreased their bets that 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 by hedge funds and other large speculators on a decline in the dollar compared with those on a gain -- so-called net shorts -- was 51,916 on May 7, compared with net shorts of 67,848 a week earlier. The difference shrank to 75,913 on April 19, the lowest since 2007.

Canada’s government bonds slumped, pushing the yield on benchmark 10-year debt up as much as 11 basis points, or 0.11 percentage point, to 1.92 percent, the highest level since March 15. The yield traded at 1.88 percent as the price of the 1.5 percent security maturing in June 2023 slid 78 cents to C$96.50.

The Bank of Canada will auction C$2.7 billion of three-year bonds on May 15. The 1 percent securities mature in August 2016.

Futures on crude oil, Canada’s biggest export, dropped as much as 3.1 percent to $93.37 a barrel in New York before trading at $95.95, down 0.5 percent. Standard & Poor’s GSCI Index of commodities sank 0.9 percent. Raw materials including oil account for about half of the nation’s export revenue.

Slow Pace

Canada is expanding at the slowest pace since 2009 as the prices of exports such as oil fall and consumers cut spending. The Bank of Canada last month cut its growth outlook for this year to 1.5 percent from 2 percent because of lower business investment and government spending.

Net employment rose by 12,500 jobs and the unemployment rate was unchanged at 7.2 percent, Statistics Canada said in Ottawa. Economists surveyed by Bloomberg News projected a 15,000-position gain and 7.2 percent unemployment.

Full-time (CANLFLNC) employment increased by 36,000 in April while part-time positions dropped by 23,600, Statistics Canada said. Private companies cut 20,000 workers and public-sector employment rose by 34,200.

The loonie was little changed against the greenback before the employment report was issued.

Jobs Expectations

“Expectations had built up for a stronger dollar in the overnight session; implicit there was the expectation of a strong jobs number,” David Tulk, chief macro strategist at Toronto-Dominion Bank’s TD Securities unit in Toronto, said by phone. “When it was on consensus, the market started responding more to a stronger U.S. dollar.”

TD on April 19 lowered its year-end forecast for the loonie to C$1.09 per U.S. dollar.

The U.S. currency rose yesterday after a Labor Department report showed the number of Americans filing claims for jobless benefits unexpectedly dropped last week to a five-year low. The U.S. jobless rate fell to 7.5 percent in April, from 7.6 percent the month before, as payrolls expanded by 165,000 jobs, more than forecast, a government report showed May 3.

The U.S. data spurred bets the Fed will slow earlier than previously anticipated its $85 billion a month of bond purchases under the quantitative-easing stimulus strategy.

Other Banks

Other central banks, including those of Japan, Australia and the euro region, are pumping cash into their economies or cutting interest rates, prompting investors to seek higher-yielding assets.

The yen slid versus major peers as a government report showed Japanese investors increased holdings of overseas bonds, fueling speculation the nation’s measures to stem deflation and spur economic growth are driving local investors to seek higher returns overseas.

The loonie has gained 1.7 percent this year against nine other developed-nation currencies monitored by Bloomberg Correlation-Weighted Indexes. The U.S. dollar has climbed 3.7 percent, while the yen has fallen 13 percent.

To contact the reporter on this story: 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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