The Canadian dollar snapped three weeks of losses on jobs gains that tripled the forecast even as U.S. employment growth faltered, accelerating a rally than began as the Bank of Canada reiterated that policy is appropriate.
The currency touched its strongest level against its U.S. counterpart since Aug. 20 as Statistics Canada said yesterday that the economy added 59,200 positions in August, exceeding the 20,000 forecast in a Bloomberg survey of 22 economists. The central bank kept its benchmark rate at 1 percent for the 24th consecutive meeting and said slack in the economy will start to disappear in 2014. Canada Mortgage & Housing Corp. may report Sept. 10 that work began on 190,000 houses in August, according to a Bloomberg survey.
Canada’s dollar rallied on “the combination of better-than-expected data in Canada and worse-than-expected data from a revision perspective in the States,” Jack Spitz, managing director of foreign exchange at National Bank of Canada, said by phone from Toronto. “The Bank of Canada, clearly that was forward guidance that was as-expected.”
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, rose 1.3 percent to C$1.0405 per U.S. dollar this week in Toronto. The currency reached C$1.0382 yesterday, the strongest intraday level since Aug. 20. One loonie buys 96.11 U.S. cents.
Canada’s 10-year benchmark government bonds fell for the first time in three weeks, with yields rising 16 basis points, or 0.16 percentage point, to 2.77 percent. The 1.5 percent security maturing in June 2023 fell $1.23 to C$89.25.
Part-time employment in Canada rose by 41,800 in August, with full-time jobs rising by 17,400, Statistics Canada said. Service industry employment increased by 40,600 and goods-producing companies hired 18,600.
“You could argue there was a fair degree of part-time job creation, but nevertheless jobs being created, and the fact the participation rate was up and unemployment rate was down obviously contrasts fairly positively with what we saw south of the border,” Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce, said by phone from London. “That has provided the Canadian dollar with some impetus.”
While Canada’s dollar gained against the majority of its most-traded peers this week, it fell against fellow commodity-currencies from Australia, New Zealand and South Africa.
The dollars of Australia and New Zealand gained “on the back of better than expected data from China and the inference that the movement in emerging-market currencies have been made more by a deleveraging aspect in conjunction with rising rates in the U.S,” National Bank of Canada’s Spitz said. “That the market had trounced Aussie and kiwi, there is more elasticity, from a volatility standpoint, in both currencies. It’s not surprising to see short Aussie positions taken back.”
Goldman Sachs Group Inc. researchers on Sept. 3 boosted their 2013 growth estimate for China to 7.6 percent from 7.4 percent, joining Credit Suisse Group AG, Deutsche Bank AG and JPMorgan Chase & Co. in raising projections.
Spending by Canadian consumers underpinned by a housing boom has powered the world’s 11th largest economy since the 2008 global financial crisis. BOC Governor Stephen Poloz says the expansion needs to shift to business spending from indebted consumers, a process that policy makers said this week is taking longer than they predicted.
The BOC forecasts third-quarter growth at 3.8 percent in its July monetary policy report. Gross domestic product grew 1.7 percent in the second quarter.
Work began on 190,000 Canadian homes at a seasonally adjusted annual pace last month, compared with 192,900 in July, Ottawa-based Canada Mortgage & Housing Corp. may report next week, according to the median of 16 responses in a Bloomberg News survey.
In the U.S., Canada’s biggest trading partner, the addition of 169,000 workers last month trailed the 180,000 median forecast in a Bloomberg survey of 96 economists. Unemployment fell to 7.3 percent, the lowest since December 2008, as workers left the labor force.
Yesterday’s payrolls report is the last one Federal Reserve officials will see before their Sept. 17-18 meeting, at which they will decide whether to reduce an $85 billion monthly pace of bond purchases that have bolstered global markets.
The unemployment report may boost currency-market volatility, Alan Ruskin, the global head of Group of 10 foreign-exchange strategy at Deutsche Bank AG in New York, wrote in a note.
“The August employment report is weak enough to seriously throw into doubt the tapering the market widely expected on Sept. 18,” Ruskin said. “This is the kind of employment report that throws the cat among the pigeons, generating maximum uncertainty for markets.”
JPMorgan Chase & Co.’s G-7 Volatility Index fell to 9.6 percent yesterday, the lowest level since July 24 and at almost the lowest level since Aug. 19. The JPMorgan gauge priced at 8.3 percent a year ago and has averaged 9.6 percent in 2013.
The Canadian dollar has fallen 3.4 percent in the past year against nine developed nation currencies tracked by the Bloomberg Correlation Weighted Indexes. The U.S. dollar has climbed 2.9 percent.
Futures traders increased bets that the Canadian dollar will decline against the U.S. dollar to the most since June 14, 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 Canadian dollar compared with those on a gain, known as net shorts, was 34,639 on Sept. 3, compared with net shorts of 24,959 a week earlier.
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