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Canadian Dollar Below Parity as Employment Unexpectedly Shrinks

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Feb. 8 (Bloomberg) -- Canada’s dollar weakened below parity with its U.S. counterpart for the first time in five days as employment unexpectedly dropped in January, adding to concern the world’s 11th-largest economy is slowing.

The currency fell against 13 of its 16 most-traded peers as the country also posted its ninth straight monthly trade deficit and housing starts for January fell to the lowest since the end of the 2009 recession. In the previous five months, Canada’s economy gained 183,900 jobs.

“The employment numbers were quite a bit softer than the market was anticipating, and we’d been fluttering around that parity level again and it broke through,” David Watt, chief economist at HSBC Holdings Plc’s Canadian unit, said by phone from Toronto. “But I don’t think the numbers were necessarily bad enough to change any perceptions about Canada. To my mind, all it really did was bring the employment levels back to a level that is more consistent with other economic data.”

The loonie, as the Canadian dollar is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.5 percent to C$1.0031 per U.S. dollar at 4:48 p.m. in Toronto. The currency touched C$1.0035, the weakest level since Jan. 31, and lost 0.7 percent over the past five days. One Canadian dollar buys 99.69 U.S cents.

The currency weakened past its 200-day moving average of 99.90 cents per U.S. dollar.

The loonie declined even as the Standard and Poor’s GSCI Index of 24 commodities rose 0.6 percent. Raw materials account for almost half of Canada’s export revenue. The S&P 500 Index of U.S. stocks gained 0.6 percent.

Bets Decreased

Hedge funds and other large speculators decreased their bets that the Canadian dollar will gain against the U.S. dollar to the lowest level since August, 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 27,761 on Feb. 5, compared with 35,057 the week before.

Canada’s government bonds rose after the employment report, pushing yields on benchmark 10-year debt down four basis points, or 0.04 percentage point, to 1.95 percent. The 2.75 percent security due in June 2022 climbed 34 cents to C$106.74.

The government will auction C$3.3 billion ($3.29 billion) of two-year notes on Feb. 13. The 1 percent securities are due in May 2015.

Canada’s trade deficit narrowed in December to C$901 million from a revised C$1.67 billion last month as imports fell faster than exports, a government report showed. Housing starts plunged 19 percent in January to an annual pace of 160,577, Canada Mortgage & Housing Corp. said in a statement.

‘Matters More’

In the U.S., Canada’s largest trade partner, the trade deficit narrowed more than forecast in December to $38.5 billion, from a revised $48.6 billion in November. A $46 billion deficit had been forecast in a Bloomberg survey of economists.

“What matters more for Canada is the U.S. market, and the trade balance improved a lot in the U.S.,” Sebastien Galy, a foreign-exchange strategist at Societe Generale SA, said by phone from New York. “That’s the reason why dollar-Canada, even though it got hit and the risks are asymmetric, considering how badly positioned the market is for news out of Canada, it’s really a very subdued reaction.”

Employment in Canada fell in January for the first time in six months, dropping by 21,900 jobs following December’s revised gain of 31,200, Statistics Canada said today in Ottawa. The unemployment rate decreased to 7 percent, from 7.1 percent, the lowest since December 2008’s 6.8 percent, as fewer people looked for work.

Economists surveyed by Bloomberg News projected a 5,000-job gain and 7.2 percent unemployment.

Interest Rates

Bank of Canada Governor Mark Carney said Jan. 23 the need to raise interest rates is less urgent than previously thought because Canada’s economy will take longer to reach full output. Policy makers said an increase in the rate may still be needed over time. The central bank has kept its benchmark rate at 1 percent since 2010 to spur the economy.

The loonie fell against the currencies of Australia and New Zealand, which like Canada export commodities, after China’s trade expanded in January more than forecast. The Chinese government said exports gained 25 percent from a year earlier and imports rose 28.8 percent.

The Canadian dollar posted its biggest drop versus its Australian counterpart since October, sliding as much as 1 percent to C$1.0367. The loonie lost 0.9 percent to 83.85 cents per New Zealand dollar.

Canada’s currency has fallen 0.6 percent this year against 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The greenback has gained 0.6 percent, and New Zealand’s dollar climbed 1.5 percent.

To contact the reporter on this story: Ari Altstedter in Toronto at aaltstedter@bloomberg.net

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