Canada’s dollar weakened from a two-month high versus its U.S. counterpart before a report later this week that economists predict will show the nation’s employers added jobs.
The Canadian currency, which tends to track movements in stocks and crude oil, the nation’s largest export, has traded at weaker levels after reaching par with its U.S. cousin in April on concern a softening U.S. economy will crimp exports. Stocks declined and oil was little changed.
“If the world starts to believe the U.S. is going to be really, really bad, that’s not going to be great for Canada,” Michael O’Neill, managing director at Knightsbridge Foreign Exchange Inc., said by phone from Toronto. “For the next little while, it’s a bearish picture. All the good news for Canada has already been priced into the rate.”
The Canadian currency weakened 0.3 percent to C$1.0225 per U.S. dollar at 4:24 p.m. in Toronto, compared with C$1.0197 on Oct. 1. It touched C$1.0180, the strongest since Aug. 6. One Canadian dollar buys 97.79 U.S. cents.
Canada’s employers added 10,000 jobs to payrolls last month, after a 35,800 gain in August, according to the median of 16 economists’ forecasts compiled by Bloomberg News. Statistics Canada is due to release the report on Oct. 8 in Ottawa.
“The key on the data front is employment on both sides of the border on Friday,” Firas Askari, head currency trader in Toronto at Bank of Montreal, Canada’s fourth-largest lender, wrote in an e-mail. “The risk is now tilted to a bigger number out of Canada. In the interim, look to buy the Canadian dollar in the C$1.0350 area.”
The Standard & Poors’ 500 index fell as much as 1.3 percent before closing at 1,137.03, down 0.8 percent. Crude for November delivery fell as much as 1 percent and gained as much as 1 percent, before closing at $81.67 a barrel on the New York Mercantile Exchange.
“With commodities also expected to be range-bound through year-end, drivers of significant Canadian-dollar strength from here seem few and far between,” Shaun Osborne and Jacqui Douglas, currency strategists at Toronto-Dominion Bank’s TD Securities unit, wrote in a note to clients today, citing Bank of Canada Governor Mark Carney’s “cautious” comments on the economic outlook.
Carney prompted speculation interest rates in the country won’t rise further this year when he said Sept. 30 in a speech in Windsor, Ontario, that economic growth has slowed more than expected and “the unusual uncertainty surrounding the outlook warrants caution.”
After the benchmark overnight rate was raised by quarter percentage points at each of the June, July and September meetings, the probability of a similar increase at the Oct. 19 meeting has dropped to “only 12 percent,” from between 40 percent and 50 percent two weeks ago, Bank of Montreal’s Askari said.
“People were buying Canada in part because they thought the bank of Canada was going to be hiking rates,” said O’Neill at Knightsbridge, referring to the Canadian dollar. “That’s been on hold after Carney’s remarks last week.”
The government 2-year note’s yield fell 1 basis point, or 0.1 percentage point, to 1.36 percent after touching the lowest since Sept. 8, tracking U.S. two-year yields, which fell to a record low 0.3987 percent on speculation the Federal Reserve will increase asset purchases. The price of Canada’s 2 percent security maturing in September 2012 was at C$101.20.
Canada’s government bonds have made investors 7.1 percent this year, according to a Bank of American Merrill Lynch index.
The loonie has gained 1.2 percent this year against a basket of currencies from 10 developed-world nations, according to the Bloomberg Correlation-Weight Currency Indices. The median of a Bloomberg News survey or 33 analysts projects the Canadian currency will end the fourth quarter at C$1.04, compared with $1.03 at the end of the third quarter.