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Canadian Dollar Gains Versus Peers on Jobs-Growth Projections

The Canadian dollar rose against the majority of its 16 most-traded peers before data tomorrow forecast to show the nation snapped two months of jobs losses in a sign the economy may be emerging from a mid-year slowdown.

The currency fell against the U.S. dollar as jobless claims in that country dropped and its service industry grew at the fastest pace since 2008. Crude oil, Canada’s largest export, climbed after American legislators took the first step to approving a military strike on Syria that could disrupt Middle Eastern fuel shipments. Tomorrow’s jobs report may reverse a string of weaker-than-forecast data, from construction activity to retail sales, that contributed to the largest monthly economic contraction since the 2009 recession in June.

“There’s been a lot of gloom hanging over Canada in recent months, so given that’s the way the market is positioned, when you do get forecasts for better data, then clearly that has a brightening effect,” Jane Foley, a senior currency strategist at Rabobank International Inc., said by phone from London. If there’s strong jobs growth tomorrow, “the market will start to evaluate if the economy is going to improve from here.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell 0.1 percent to C$1.0505 per U.S. dollar at 5 p.m. in Toronto. One loonie buys 95.19 U.S. cents.

Bonds, Oil

Canada’s 10-year benchmark bonds fell for a fifth straight day, with yields rising eight basis points, or 0.08 percentage point, to 2.8 percent. The 1.5 percent security maturing in June 2023 lost 67 cents to C$88.99.

Futures on crude oil gained 1 percent to $108.44 per barrel in New York while the Standard & Poor’s 500 Index of U.S. stocks gained 0.1 percent.

A report tomorrow will show Canada created 20,000 jobs in August, according to the median estimate of 22 economists surveyed by Bloomberg, after losing 39,400 the previous month and 400 in June. The unemployment rate will remain at 7.2 percent, a separate survey showed.

Fewer Americans than forecast filed applications for unemployment benefits last week, according to Labor Department data issued today in Washington, bolstering predictions a report tomorrow will show hiring picked up in the U.S., Canada’s biggest trading partner.

The U.S. dollar surged against most major peers on speculation the stronger data will prompt the Federal Reserve to pare back monetary stimulus that is viewed as depressing the greenback.

‘Positive Numbers’

The Institute for Supply Management’s non-manufacturing index for the U.S. increased to 58.6, the fastest pace since at least January 2008, from 56 the prior month, the Tempe, Arizona-based group said today. The median projection in a Bloomberg survey of economists called for a decline to 55. Readings above 50 indicate growth in the industries that make up almost 90 percent of the economy.

“On the whole, just looking at the data that’s out this morning, that is reinforcing the idea the Fed will be tapering this month and continuing to taper throughout the fall,” said Greg Moore, a currency strategist at Toronto-Dominion Bank, by phone from Toronto. “The broad U.S. strength is seeing a lower Canadian dollar.”

Tomorrow’s U.S. employment report for August may show payrolls climbed by 180,000 after July’s 162,000 gain that was the smallest in four months, according to the Bloomberg survey median. The jobless rate probably held at a more than four-year low of 7.4 percent.

FX Trading

Foreign exchange trading in Canada surged to an average $61.4 billion a day in April, the highest since 2008, according to a semi-annual survey by the Canadian Foreign Exchange Committee, released today. That was a 20 percent increase from the last survey in October last year, the biggest increase in six years.

“It’s possible some of the positive numbers we’ve been getting out of the U.S. have been supporting a stronger outlook for the U.S. economy,” said Emanuella Enenajor, an economist at Canadian Imperial Bank of Commerce’s CIBC World markets, by phone from Toronto. “Therefore oil, therefore the Canadian dollar.”

The Bank of Canada kept its main interest rate unchanged at 1 percent yesterday and reiterated that current monetary policy remains appropriate as an expected rotation of demand to exports and investment is being delayed by slower growth abroad.

Options traders grew more bearish on the Canadian dollar for the first time in six days. The three-month so-called 25 delta risk reversal rate, which measures the premium charged for the right to buy the U.S. dollar against its Canadian counterpart versus contracts to sell, rose to 1.45 percent, from 1.43 percent yesterday.

The loonie has gained 0.3 percent in the past week against nine developed nation currencies tracked by the Bloomberg Correlation Weighted Index. The Australian dollar’s 2.8 percent gain was the biggest and a 2.2 percent decline made the yen the biggest loser.

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