Canada Dollar Drops on Bets Jobs Data Won’t Stop Tapering by Fed

The Canadian dollar fell versus 15 of its 16 most-trade peers amid speculation that a weaker-than-forecast report on U.S. employment won’t keep the Federal Reserve from slowing monetary stimulus as soon as next month.

The currency trimmed a loss against its U.S. counterpart after data showed American employers added fewer jobs than anticipated in July even as the jobless rate fell. Earlier the loonie, as the Canadian dollar is nicknamed for the image of the aquatic bird on the C$1 coin, touched a two-week low versus the greenback. Benchmark government-bond yields fell from a two-year high. The U.S. is Canada’s biggest trade partner.

“It’s certainly not a game changer,” Adam Button, a currency analyst in Montreal at forexlive.com, said of the payrolls report. “The Bank of Canada is very confident in this U.S. recovery. One number never really changes anything.”

The loonie depreciated 0.4 percent to C$1.0392 per U.S. dollar at 5 p.m. in Toronto, falling against all of its major peers except the New Zealand dollar. The Canadian currency, which lost 1.1 percent over the past five days, touched C$1.0403, the weakest level since July 18. One Canadian dollar buys 96.23 U.S. cents.

Futures traders decreased their bets that the Canadian dollar will decline against the U.S. currency, figures from the Washington-based Commodity Futures Trading Commission showed.

The difference in the number of wagers by hedge funds and other large speculators on a decline in Canada’s currency compared with those on a gain -- so-called net shorts -- was 11,434 on July 30, compared with net shorts of 16,758 a week earlier. This week’s total was the least in a month.

Bonds Gain

Canada’s government bonds rose, pushing yields on the benchmark 10-year (GCAN10YR) security down six basis points, or 0.06 percentage point, to 2.49 percent. Yields touched 2.6 percent earlier, the highest level since August 2011. The price of the 1.5 percent debt due in June 2023 increased 48 cents to C$91.46.

The Canadian currency briefly erased losses against the greenback after the U.S. Labor Department reported a 162,000-job increase in U.S. payrolls last month, the smallest in four months. The median forecast of 93 economists surveyed by Bloomberg called for a 185,000 gain. The U.S. unemployment rate declined to 7.4 percent, from 7.6 percent the previous month.

Oil, Canada’s biggest export, dropped for the first time in three days, with futures losing 1 percent to $106.83 a barrel in New York. The Standard & Poor’s GSCI index of commodities declined 0.6 percent.

Canada Impact

“All of a sudden it became ‘maybe the U.S. economy, which is Canada’s biggest export partner, is not as strong as we thought, and how is that really going to impact Canadian growth?’” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC, by phone from New York. “That does not bode well for Canadian exports.”

The jobs figures followed reports this week that showed U.S. gross domestic product rose at a 1.7 percent annualized pace in the second quarter, versus a Bloomberg survey’s forecast of 1 percent, while home prices rose in May by the most since 2006 and manufacturing expanded.

Fed policy makers are discussing whether the U.S. economy has improved enough for them to start slowing the pace of their monthly bond purchases, which tend to devalue the greenback.

The U.S. central bank buys $85 billion of Treasuries and mortgage debt each month in its quantitative-easing strategy to put downward pressure on borrowing costs. Half of 54 economists surveyed by Bloomberg last month said the Fed may decide at its Sept. 17-18 policy meeting to reduce the purchases to $65 billion a month.

Fed Chairman Ben S. Bernanke told Congress in July that any reduction in stimulus would depend on the economy’s performance.

Canadian Jobs

Canada gained 10,000 jobs in July, after losing 400 the previous month, economists in a Bloomberg survey forecast before a government report due Aug. 9. The unemployment rate was unchanged at 7.1 percent, economists projected.

The nation’s gross domestic product rose 0.2 percent in May from 0.1 percent the month before, Statistics Canada reported July 31 in Ottawa. Economists in a Bloomberg survey had estimated 0.3 percent growth.

The loonie is little changed this year against nine other developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has advanced the most, rising 6.1 percent, while the Australian dollar is the biggest loser, sliding 11 percent. The U.S. dollar has added 5.3 percent.

To contact the reporters on this story: Jeff Marshall in New York at jmarshall75@bloomberg.net

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

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