Canadian Dollar Climbs on Nation’s Largest Jobs Gains in Decade

Canada’s dollar gained for a second day against its U.S. peer after the economy added the most jobs in more than a decade in May and the unemployment rate declined.

The currency advanced to its first weekly gain in five against the greenback as the U.S. jobless rate went up even as payrolls increased, offering mixed signals as the Federal Reserve considers tapering monetary stimulus. It climbed the most in more than a year yesterday after Bank of Canada Governor Stephen Poloz in his first public comments reiterated his predecessor’s view that rates will rise as the economy grows. Canada’s 10-year bond yield rose to the highest in a year.

“The economy is holding up reasonably well this quarter, supporting, for now, the Bank’s current policy-rate tightening bias,” David Madani, an economist at Capital Economics Ltd., wrote in a note to clients. Madani, a former senior economist at the Bank of Canada, said “recent employment figures will help to sooth fears about a second-quarter economic slowdown.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, rose 0.7 percent to C$1.0197 per U.S. dollar at 5 p.m. in Toronto after gaining as much as 1 percent. One loonie buys 98.07 U.S. cents.

Futures on crude oil rose 1.5 percent to $96.21 per barrel in New York. The Standard & Poor’s 500 Index of stocks added 1.3 percent.

‘Holding Up’

Canadian employment rose by 95,000 in May, the most since August 2002, and the jobless rate fell to 7.1 percent from 7.2 percent even as more people joined the workforce, Statistics Canada said in Ottawa. The job gain tripled the highest of 25 forecasts in a Bloomberg economist survey that predicted no change in the unemployment rate.

“It’s a sign that the Canadian jobs market is holding up, so it’s giving a little bit of support to the Canadian dollar and triggering weakness in bonds,” Emanuella Enenajor, an economist at CIBC World Markets, said by phone from Toronto. “This supports the view that the Canadian economy is doing a little bit better than we thought in the spring.”

The U.S. unemployment rate rose to 7.6 percent from 7.5 percent, Labor Department figures showed in Washington, after economists in Bloomberg survey forecast no change. Payrolls added 175,000 after a revised 149,000 increase in April that was smaller than first estimated. The median forecast in another survey called for a 163,000 gain.

Tapering 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.

“We do see the Fed tapering the asset-purchase program by the end of this year -- given the correlation with Canadian market, that would see Canadian yields also head higher,” Enenajor said. CIBC is forecasting 10-year yields will rise to 2.45 percent by year-end.

Canadian government bonds fell, with the yield on the 10-year benchmark gaining 11 basis points, or 0.11 percentage point, to 2.15 percent, the highest level since April 5, 2012. The 1.5 percent note due June 2023 dropped 92 cents to C$94.25.

Rates Outlook

“As the world heals, interest rates will rise,” Poloz, the former chief executive officer of the nation’s trade financing agency who took office on June 3, said during testimony to the House of Commons Finance Committee yesterday in Ottawa. “It will be consistent with our inflation target, which is to get inflation back up to 2 percent.”

Poloz declined to say whether the Canadian dollar was overvalued.

Former Governor Mark Carney, who left June 1 to head the Bank of England, kept the key interest rate at 1 percent for the 22nd consecutive meeting on May 29. Poloz will probably maintain Carney’s no-change policy for at least the rest of the year, according to economists surveyed by Bloomberg News.

May job’s growth “will improve the outlook for Canada’s economy and will justify some of the words from the new BOC Governor, who said rates will eventually rise,” Joe Manimbo, a market analyst at Western Union Business Solutions, a unit of Western Union Co., said in a phone interview from Washington.

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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