Canadian Dollar Has Biggest Gain Since 2011 on Surge in Jobs

Canada’s dollar posted the biggest gain against its U.S. peer in a year and a half as the economy added the most jobs in a decade in May and the unemployment rate declined.

The currency climbed to a three-week high versus the greenback as new Bank of Canada Governor Stephen Poloz reiterated his predecessor’s view that interest rates will rise as the economy grows. U.S. reports showing the jobless rate climbing even as payrolls grew offered mixed signals as the Federal Reserve considers tapering asset purchases. The Bank of Canada releases next week its semi-annual Financial System Review, which previously cited mounting consumer debt as the greatest risk.

The jobs gains “should help the loonie sustain these multi-week highs against the greenback,” Joe Manimbo, a market analyst at Western Union Business Solutions, a unit of Western Union Co., said yesterday in a phone interview from Washington. “I’m looking to see whether it can break through C$1.0150 -- that would open the door to C$1.0100 and we could see the loonie attain parity.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, ended the week 1.8 percent higher against the U.S. dollar at C$1.0197 in Toronto, the biggest five-day increase since December 2011. One loonie buys $98.07.

The Canadian dollar, which last traded on par with the greenback on Feb. 14, touched C$1.0167, the strongest since May 16. It crossed the 50-day and 100-day moving averages, seen by some traders as gauges of momentum.

‘Carneyesque’ Poloz

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 yesterday in Ottawa. The job gain tripled the highest of 25 forecasts in a Bloomberg economist survey that predicted no change in the unemployment rate.

This came a day after Poloz, in his first public comments during testimony to the House of Commons Finance Committee in Ottawa, said “as the world heals, interest rates will rise.” The former chief executive officer of the nation’s trade financing agency declined to say whether the Canadian dollar was overvalued, and said he wouldn’t offer “running commentary” on it.

“Mr. Poloz sounded very Carneyesque” in his testimony, Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, said by phone from Toronto yesterday. “We were expecting a slightly different approach.”

Economy’s Threats

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.

“For a long time, the expectation had been Canada will be one of the first central banks to tighten rates,” Osborne said. “They may be one of the first, but the peer lead they seemed to have at the end of last year has narrowed.”

Policy makers including Carney said in the previous financial review in December that instability from Europe’s debt crisis along with indebted domestic households threatened growth. The first review under Poloz, who cited the risk of the debt overhang in his June 6 testimony, will be released June 13.

Head-Scratcher

The U.S. unemployment rate rose to 7.6 percent from 7.5 percent, Labor Department figures showed yesterday in Washington, after economists in Bloomberg survey forecast no change. Nonfarm payrolls rose 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.

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.

“Investors are still scratching their heads with these mixed numbers,” Manimbo said. “It’s certainly an improvement in terms of nonfarm, but the unemployment rate taking away from the Fed’s target of 6.5 percent is certainly grounds for some concern.”

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 39,776 on June 4, compared with net shorts of 33,359 a week earlier.

The loonie has fallen 1 percent in the past month against nine developed nation currencies tracked by the Bloomberg Correlation-Weighted Index. The U.S. currency has gained 1.1 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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