The Canadian dollar gained for the first time in three weeks against its U.S. counterpart as crude oil rose and a report showed the world’s 11-largest economy grew faster than forecast in November.
The loonie, as Canada’s dollar is nicknamed, was worth more than the greenback as oil, the nation’s largest export, reached a four-month high this week. The nation’s economy expanded 0.3 percent to an annualized C$1.56 trillion ($1.56 trillion), faster than the 0.2 percent median forecast in a Bloomberg News survey. The unemployment rate may have increased and jobs growth may have slowed in January, according to a separate survey before a Statistics Canada report Feb. 8.
“For the loonie, it was a decent week and we did see it find support from better-than-expected growth data for November,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, said in a telephone interview. “We’ll have a better idea when we see the jobs data next week and if unemployment can hold near a four-year low that would keep the Bank of Canada on a path to eventually raise interest rates.”
The loonie gained 0.9 percent to 99.65 cents per U.S. dollar this week in Toronto. On Jan. 28 it matched the weakest level since July 27. On Canadian dollar buys $1.0035. The currency weakened 0.5 percent during January, the first decline since October.
Implied volatility for three-month options on the U.S. dollar versus the loonie reached 6.1 percent yesterday, the least since Jan. 24. It averaged 7.4 percent during the past year. Implied volatility signals the expected pace of currency swings and is quoted by traders to set option prices.
Hedge funds and other large speculators decreased 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 on an advance in the Canadian dollar compared with those on a drop -- so-called net longs -- was 35,057 on Jan. 29, compared with 57,952 a week earlier.
Futures on crude oil rose 1.8 percent this week to $97.61 a barrel in New York, after touching the highest since Sept. 18. Western Canada Select, the benchmark for oil-sands bitumen, traded at a discount of $31.50 to U.S. West Texas Intermediate price Jan. 31, down from $32 Jan. 30. The discount reached $42.50 on Dec. 14.
“The concern is that Canadian oil trades at a sharp discount, but as oil rises, that discount level will rise as well,” Alan Knuckman, chief market strategist at Optionshop, said in a phone interview from Chicago.
The country’s benchmark 10-year bonds fell, pushing the yield to 2.04 percent, the highest level since May. The 2.275 percent security maturing in June 2022 fell 81 cents to C$106.02.
Canadian government and provincial bonds are underperforming global peers by the widest margin in six months as the nation’s 25-year commodity-fueled expansion shows signs of faltering as global-growth optimism increases.
Indexes of debt issued by Canada’s federal and provincial governments lost one percent in January, the biggest monthly decline since November 2010 and the most relative to sovereign peers since August, Bank of America Merrill Lynch data show.
Canada’s unemployment rate may have increased to 7.2 percent in January from 7.1 percent the month before, according to the median in a Bloomberg News survey of 20 economists before the Statistics Canada report Feb. 8. Jobs growth slowed to 5,000 from 31,200 the month before, a separate survey showed.
The Canadian economy may be stymied during the next year by a drop in oil prices due to decreased global growth and the beginnings of a housing market correction as household debt has increased, according to a Capital Economics Ltd.
“We see the loonie going down and this is a view conditional on our outlook on the Canadian economy for this year,” said David Madani, an economist for Capital Economics, in a telephone interview from Toronto. “There are three trends that lead us to this view, the global backdrop is weak, commodity prices are going to drop back and households are over-leveraged. There is such a thing as too much debt.”
The Canadian dollar was little changed yesterday after a government report showed job gains for the past three months in America, Canada’s largest trading partner. U.S. employment grew by 157,000 in January, after a revised increase of 196,000 for December and 247,000 for November.
“The only upside was the revision higher for previous months and that’s considered a positive for the Canadian dollar,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia, by phone from Toronto. “We’re still close to that range we’ve seen for a long time, with the Canadian dollar and U.S. dollar hovering around parity.”
The loonie will strengthen to 98 cents per U.S. dollar by the end of the March and 97 cents by the end of the year, according to the median estimate in a Bloomberg News survey of 48 analysts and strategists.