Canadian Dollar Weakens After Unexpected August Jobs Decline

The Canadian dollar weakened against most of its major peers after the nation unexpectedly lost jobs last month, bolstering the case the central bank made earlier this week for waiting to raise interest rates.

The currency fell for the first time in three days versus its U.S. counterpart after Canada said it lost 11,000 positions in August, compared with the 10,000 gain forecast in a Bloomberg economist survey and the 41,700 added the month before. The Bank of Canada refrained this week from raising interest rates and maintained a neutral view on its next move, saying recent strength in exports would have to be sustained to ensure broader economic growth.

“It probably confirms their neutral bias going forward,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, in a phone interview.

The loonie, as the Canadian dollar is called for the image of the aquatic bird on the C$1 coin, lost 0.1 percent to C$1.0880 per U.S. dollar at 5 p.m. in Toronto. One loonie buys 91.91 U.S. cents.

Canada’s benchmark 10-year government bond gained, with yields falling one basis point, or 0.01 percentage point, to 2.12 percent. The 2.5 percent note maturing in June 2024 added seven cents to C$103.37.

Weakness Pattern

The loonie has declined 2.4 percent against the U.S. dollar this year as the central bank shifted to a neutral outlook on its next interest rate move, saying exports and business investment rather than household consumption is needed to achieve sustainable economic growth that will warrant higher interest rates.

Data yesterday showed Canada posted the widest merchandise trade surplus in almost six years in July as demand for the nation’s automobiles led exports to a record.

“Our bias is still towards longer term Canadian dollar weakness,” said Adam Cole, head of G-10 currency strategy at Royal Bank of Canada, by phone from London.

Canada’s job losses last month fell mostly on the private sector, which cut 111,800 positions, a record total that also matched a 1 percent drop set in April 1982.

Part-time employment fell by 8,700 in August and full-time by 2,300, Statistics Canada said. Another 20,800 people left the labor force in August, lowering the participation rate to 66 percent, the lowest since November 2001.

Trade Partner

Employers in the U.S., Canada’s largest trading partner, added the fewest jobs this year in August, representing a pause in the recent momentum of the U.S. labor market as companies assess the prospects for demand.

The 142,000 advance in payrolls was weaker than the lowest estimate in a Bloomberg survey and followed a revised 212,000 gain in July, figures from the Labor Department showed. The median Bloomberg survey estimate was for a 230,000 increase. The unemployment rate fell to 6.1 percent from 6.2 percent in July, reflecting a drop in joblessness among teenagers.

The Federal Reserve is forecast to begin raising interest rates next year after holding its benchmark rate target at virtually zero since 2008.

“As the Fed acknowledges it’s getting closer to reaching its goals, it probably should be better for the U.S. dollar than the Canadian dollar,” Toronto-Dominion’s Osborne said.

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