Canada’s dollar had the biggest weekly drop in almost five months on signs a faltering U.S. economic recovery will sap demand for the nation’s exports.
The loonie, as the currency is nicknamed, weakened yesterday after U.S. jobs growth in April trailed forecasts. It erased gains from a rally last week following Bank of Canada Governor Mark Carney’s April 24 speech to parliament that an increase in interest rates may be necessary to contain inflation. The nation’s unemployment rate increased last month, according to the median estimate in a Bloomberg News survey of 25 economists before the May 11 Statistics Canada report.
“We saw positions being unwound from investors who went long following Carney’s hawkish talk -- that had precipitated the gains earlier this week and last week,” Blake Jespersen, director of foreign exchange in Toronto at Bank of Montreal’s BMO Capital Markets unit, said in an interview. The Canadian dollar came under “considerable selling pressure.” A long position is a bet that an asset will increase in value.
Canada’s currency, nicknamed the loonie, weakened 1.6 percent this week to 99.61 cents per U.S. dollar in Toronto, the biggest drop since the five days ended Dec. 16. It touched 98 cents on April 27, the strongest since September. One Canadian dollar buys $1.0039.
Government bonds rose, pushing the 10-year yield down 16 basis points, or 0.16 percentage point, to 2.02 percent. The price of the 2.75 percent bonds due in June 2022 added C$1.46 to C$106.65.
Two-year government bond yields have climbed 29 basis points this year to 1.25 percent on the nation’s growth prospects relative to other Group of Seven countries.
The probability the bank of Canada will raise interest rates by September fell to less than half, down from two-thirds at the start of the week, according to Bloomberg calculations based on overnight index swaps.
Futures traders increased their bets that the Canadian dollar will gain against the U.S. dollar, 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 an advance in the Canadian dollar compared with those on a drop -- so-called net longs -- was 70,223 on May 1, compared with net longs of 44,224 a week earlier.
Weaker-than-forecast jobs growth data yesterday pointed to a recovery that may be losing momentum in the U.S., destination of three-quarters of Canada’s products. Crude oil, the biggest Canadian export, fell below $100 a barrel for the first time since February.
“The U.S. employment report suggested weak growth momentum, but with declining unemployment, that will handcuff Federal Reserve doves, who might respond with quantitative easing” said Greg Anderson, the North American head of G-10 currency strategy at Citigroup Inc. in New York. “As a result, commodities tanked and the Canadian dollar went with it.”
Canada’s Ivey purchasing managers’ index fell last month to the lowest level since July, adding to evidence the nation’s economy is growing more slowly than projected by the central bank.
The index dropped to 52.7 in April on a seasonally adjusted basis, following a March reading of 63.5, according to a statement by the University of Western Ontario business school. Readings greater than 50 indicate government and company purchases advanced. Economists surveyed by Bloomberg News forecast a reading of 61, based on the median of 13 estimates.
The world’s 10th largest economy will grow at a 2.5 percent annualized pace this quarter, up from a January estimate of 1.8 percent, the Bank of Canada said in an April 18 quarterly policy report. Inflation will average 2 percent through June, higher than a previous estimate of 1.5 percent.
U.S. nonfarm payrolls climbed 115,000, the smallest gain in six months, after a revised 154,000 rise in March that was more than initially estimated, Labor Department figures showed today in Washington. The median estimate of 85 economists surveyed by Bloomberg News called for a 160,000 advance. The jobless rate fell to a three-year low of 8.1 percent.
Canada’s jobless rate reached 7.3 percent in April, according to a Bloomberg News survey, up from 7.2 percent the previous month. Employment increased by 10,000, based on a separate survey, versus an increase of 82,300 in March.
The loonie, which traded as low as C$1.0319 in January, will weaken to parity with its U.S. counterpart by the end of June before strengthening to 98 cents at year-end, according to the median of 39 forecasts compiled by Bloomberg.