Canada Dollar Rises Most Since August as Jobs Gain Tops Forecast

The Canadian dollar posted its biggest gain versus its U.S. counterpart in almost five months as employers in December added almost twice the number of jobs forecast, lending weight to the government’s view that business investment will fuel an economic rebound.

The currency ended the week higher versus the majority of its 16 most-traded peers after a report yesterday showed Canada’s unemployment rate unexpectedly fell to a four-year low in December and hiring rose for a fifth month. Policy makers project employers to lead the nation out of a slump that slowed annualized growth to 0.6 percent in the third quarter. Bank of Canada Senior Deputy Governor Tiff Macklem will address students at Queen’s University in Kingston, Ontario on Jan. 10.

“Canadian fundamentals continue to look positive,” Jack Spitz, managing director of foreign exchange at National Bank of Canada, said by phone from Toronto. “Flows are thin with many people still off. That said there should be some position squaring. Dollar-Canada has moved, more or less, on its own merits.”

The Canadian dollar, called the loonie for the image of the aquatic bird on the C$1 coin, gained 1 percent this week to 98.72 cents per U.S. dollar in Toronto, the most since the week ending Aug. 10. One loonie buys $1.0130.

Oil, Stocks

Crude oil, Canada’s biggest export, gained 2.6 percent to $93.13 a barrel in New York, and the Standard & Poor’s 500 Index of stocks advanced 4.6 percent.

Hedge funds and other large speculators increased 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 by on an advance in the Canadian dollar compared with those on a drop -- so-called net longs -- was 65,926 on Jan. 1, compared with net longs of 63,352 a week earlier.

Canada’s longer-maturity government bonds fell for the fourth time in five weeks, with yields on the benchmark 10-year security rising 17 basis points, or 0.17 percentage point, to 1.94 percent. The 2.75 percent security due in June 2022 declined C$1.52 cents to C$106.96.

The Bank of Canada said it will sell C$3.4 billion ($3.5 billion of five-year notes on Jan. 9. The 1.25 percent securities will mature in March 2018.

Monetary Policy

Bank of Canada policy makers reiterated Dec. 4 they may raise interest rates while the U.S. Federal Reserve has increased monetary stimulus to reduce unemployment. Bank of Canada Governor Mark Carney said that economic growth will accelerate this year after temporary disruptions in energy output and weak global demand curbed the country’s expansion.

The Bank of Canada’s bias toward raising its benchmark interest-rate target contrasts with global central banks around the world that have resorted to monetary stimulus to try to foster growth this year.

Carney has kept the key rate at 1 percent for more than two years, the longest pause since the 1950s. Carney will leave the central bank June 1 to run the Bank of England.

Overnight index swaps show greater odds of a Bank of Canada rate rise this year, with traders assigning a 54 percent chance to a rate increase in October, up from 19 percent two months ago, according to Bloomberg calculations.

Royal Bank of Canada forecast the central bank may boost its interest-rate target twice this year, in the third and fourth quarters, to 1.5 percent.

Jobs Data

The country’s jobless rate fell to 7.1 percent from 7.2 percent and employment rose by 39,800, Statistics Canada said yesterday in Ottawa. None of the 23 economists surveyed by Bloomberg News predicted a drop in the unemployment rate and the gain in jobs was almost double the highest forecast.

“We were very surprised by the Canadian employment number as we expected some give back after last month’s strong reading,” Blake Jespersen, managing director of foreign exchange in Toronto at Bank of Montreal, said in an e-mailed response to questions. The Canadian dollar will trade in a range close to 98.5 per U.S. dollar in the foreseeable future, he said.

The loonie rose as payrolls in the U.S., Canada’s largest trade partner, climbed by 155,000 workers last month, following a revised 161,000 advance in November that was more than initially estimated, the Labor Department said in Washington. The median estimate of 82 economists surveyed by Bloomberg called for an increase of 152,000. The U.S. unemployment rate was higher than forecast at 7.8 percent.

Canada’s currency has gained 1.4 percent this year versus nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The greenback has dropped 0.3 percent.

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