Canadian Dollar Fluctuates Amid Speculation When Fed Will Taper

Canada’s dollar was little changed after fluctuating against its U.S. peer as investors speculated how a mix of economic data will influence the Federal Reserve’s decision on when to begin tapering four years of stimulus.

The currency strengthened early after a private report showed companies in America hired fewer workers than projected in May, only to erase gains on a faster-than-forecast expansion in U.S. service industries. The Canadian currency gained versus the dollars of Australia and New Zealand, fellow commodities producers, as the nation’s building permits unexpectedly rose in April. Jobless rates in Canada and the U.S. are forecast to remain unchanged when they are reported June 7.

“The market’s in a bit of a quandary about what to do, especially when you’ve got the all-important U.S. and Canada employment data coming out,” John Curran, a senior vice president at CanadianForex Ltd., an online foreign-exchange dealer, said in a phone interview. “We’re still within the C$1.0330-C$1.0380 range we’ve been in recently.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, traded at C$1.0343 per U.S. dollar at 5 p.m. in Toronto after touching C$1.0380. One loonie buys 96.67 U.S. cents.

Canadian government bonds rose, with the yield on the 10-year benchmark declining by four basis points, or 0.04 percentage point, to 2.04 percent. The 1.5 percent note due June 2023 rose 36 cents to C$95.14.

Futures on crude oil, Canada’s biggest export, rose 0.4 percent to $93.66 per barrel in New York. The Standard & Poor’s 500 Index of stocks declined 1.4 percent.

Payroll Expectations

“It’s all about employment in the U.S. on Friday,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “That we have come a bit shy of expectations is a little bit disappointing, so there may be some that start taking the red pen to payroll expectations.”

Fed Chairman Ben S. Bernanke said May 22 the central bank could reduce its monthly purchases of $45 billion of Treasuries and $40 billion of mortgage bonds if the U.S. employment outlook shows a sustainable improvement. Policy makers have pledged to keep interest rates near zero as long as joblessness is above 6.5 percent and inflation is no more than 2.5 percent.

Fed Bank of Dallas President Richard Fisher, one of the most vocal critics of quantitative easing, said yesterday it “would be prudent to dial back the rate of purchases” as a rebound in home prices signals an economic recovery.

Loonie Reaction

U.S. data will show 165,000 new jobs created in May, unchanged from the previous month, leaving the unemployment rate at 7.5 percent, Bloomberg surveys show before the June 7 data.

“A weaker labor report might mean the Fed might continue to purchase assets for longer, so you might expect the U.S. dollar to sell off” versus the Canadian dollar, Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview. “At the same time, the potential future demand from U.S. consumers is very important to the Canadian economy,” so a payroll miss would also hit the Canadian dollar.

Canada’s unemployment rate held at 7.2 percent in May, a report the same day is forecast to show.

The value of Canadian municipal permits rose 10.5 percent to C$6.96 billion ($6.73 billion), following a revised 6 percent rise in March, Statistics Canada said in Ottawa. The gain was the fourth in a row, the longest streak of increases in a decade. Economists forecast a 3 percent decline, according to the median of 11 responses to a Bloomberg survey.

The loonie gained 1.1 percent on the Aussie and 0.6 percent on the kiwi.

Poloz Debut

Bank of Canada Governor Stephen Poloz will probably face questions about the prospects for economic expansion during testimony to the House of Commons Finance Committee at 8:45 a.m. in Ottawa tomorrow. It will be his first public comment since he took over the country’s central bank June 3.

His statements will be combed for reference to the so-called tightening bias held by predecessor Mark Carney that made him an outlier among Group of Seven central bankers as the only one abstaining from extraordinary measures to stimulate his economy and warning of rate increases.

Canada’s dollar has lost 0.8 percent in the past month against nine other developed-nation currencies tracked by the Bloomberg Correlation Weighted Index. Australia’s dollar leads with a loss of 6 percent and New Zealand’s currency dropped 5.4 percent. The U.S. dollar led gainers, adding 2.1 percent.

To contact the reporter on this story: Cecile Gutscher in London at cgutscher@bloomberg.net

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

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