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Canada Dollar Rises First Time in 5 Days on Bets Loses Overdone

Dec. 5 (Bloomberg) -- The Canadian dollar appreciated for the first time in five days, rising from a more than three-year low, amid speculation employment growth may suggest stronger economic improvement than the Bank of Canada indicated.

The currency gained against most major peers as Canadian building permits increased more than forecast in October. A report tomorrow is predicted to show the economy added jobs for a fourth month in November. Canada’s currency fell yesterday to C$1.07 per U.S. dollar as the central bank warned of low inflation, spurring bets it will keep interest rates on hold as the Federal Reserve lets U.S. borrowing costs rise by trimming bond-buying.

“We have come too far, too quickly,” said Dean Popplewell, head analyst at the online currency-trading firm Oanda Corp., by phone from Toronto. “They’re anticipating stronger numbers -- yes, that’s probably a fair comment -- hence why the Canadian weakness certainly ran out of gas.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, rose 0.3 percent to C$1.0654 per U.S. dollar at 5 p.m. in Toronto. Yesterday’s low of C$1.0707 was the weakest since May 2010. One loonie buys 93.86 U.S. cents.

Canada’s benchmark 10-year government bond fell, with yields rising two basis points, or 0.02 percentage point, to 2.68 percent, the highest since Oct. 16. The 1.5 percent security maturing in June 2023 lost 19 cents to C$90.24.

Futures of crude oil, Canada’s biggest export, rose for a fifth day, gaining 0.1 to $97.31 per barrel in New York after touching $97.99, the highest level since Oct. 29.

Jobs Gains

A report tomorrow will show Canada added 12,000 jobs in November, according to a Bloomberg survey of 20 economists, compared with 13,200 in October and an average of 12,630 per month this year.

“If you get this great Canadian job data tomorrow, we’re not going to C$1.0750, it’ll be at C$1.0550,” Darcy Browne, managing director of currencies at Canadian Imperial Bank of Commerce’s CIBC World Markets unit, said by phone from Toronto. “So you might as well hold on and wait and see what the data is at this point.”

The value of municipal permits rose 7.4 percent to C$7.19 billion ($6.75 billion), Statistics Canada said in Ottawa. Economists forecast a 1 percent gain according to the median of nine responses to a Bloomberg survey.

Policy makers have tightened rules on mortgage lending in recent years amid concerns the nation’s housing market is overvalued and a sharp correction in prices would wreak havoc on consumers carrying record debt loads.

Inflation Risk

In his policy statement yesterday, Bank of Canada Governor Stephen Poloz said he was keeping policy rates at 1 percent because the risks associated with elevated debt levels “have not materially changed” while the risks of inflation staying below the 1 percent to 3 percent target “appear to be greater.”

The loonie has fallen 4.2 percent this year against nine developed-nation currencies tracked by the Bloomberg Correlation Weighted Index. The U.S. dollar has increased 3.6 percent.

The U.S. economy expanded in the third quarter at a faster pace than initially reported, led by the biggest increase in inventories since early 1998, as gross domestic product climbed at a 3.6 percent annualized rate, up from an initial estimate of 2.8 percent and the strongest since the first quarter of 2012, Commerce department figures showed today in Washington.

Taper Talk

Applications for U.S. unemployment benefits unexpectedly fell last week to the lowest level in more than two months, decreasing 23,000 to 298,000 in the week ended Nov. 30, the Labor Department said.

A separate report tomorrow will show the U.S. added 185,000 jobs in November, down from 204,000 new positions the previous month, according to the median estimate of a Bloomberg survey of 86 economists.

“The jobs report tomorrow is a bigger focus and so we may be in a sort of sideways range trade until then,” said Greg T. Moore, a currency strategist at Toronto-Dominion Bank, by phone from Toronto. “Stronger U.S. data may suggest the U.S. will taper their quantitative-easing program sooner than later, and so the run of strong data we’ve seen all week reinforces this U.S. dollar strengthening trend.”

The U.S. central bank buys $85 billion of bonds a month to push down borrowing costs and spur economic growth. Minutes of the Fed’s latest meeting released Nov. 20 showed policy makers expected economic data to illustrate improvement in the job market and “warrant trimming the pace of purchases in coming months.”

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

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