Canada Dollar Falls as Job Losses Add to Economic Slowing

The Canadian dollar touched the weakest level this month versus its U.S. counterpart, sliding below parity, as an unexpected drop in employment in January added to concern the world’s 11th-largest economy is slowing.

Canada’s benchmark 10-year government bond rose for the first week since Jan. 18 as the country had its ninth straight monthly trade deficit and housing starts fell to the lowest since the end of the 2009 recession. Manufacturing sales fell in December, data next week may show. Oil, Canada’s biggest export, fell for the first time in nine weeks, and investors erased bets that interest rates may rise this year.

“The sentiment for the Canadian economy has been shifting, and something like the jobs data sends a signal that we’re in more of a precarious situation today than we thought,” Aaron Fennell, a futures specialist at Bank of Nova Scotia’s ScotiaMcLeod in Toronto, said yesterday by phone from Toronto.

The loonie, as the Canadian dollar is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.6 percent to C$1.0020 per U.S. dollar this week in Toronto. The currency slid yesterday past its 200-day moving average of 99.90 cents and touched C$1.0035, the weakest since Jan. 31. One Canadian dollar buys 99.80 U.S cents.

The yield on Canada’s benchmark 10-year government bond dropped eight basis points, or 0.08 percentage point, this week to 1.96 percent. The 2.75 percent security maturing in June 2022 climbed 68 cents to C$106.71. Two-year yields slid eight basis points to 1.11 percent.

Bond Auction

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.

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. The central bank lowered its growth forecast for this year to 2 percent, from an October prediction of 2.3 percent.

The central bank has kept its benchmark rate at 1 percent since 2010 to spur the economy. Policy makers said last month an increase in the rate may still be needed over time.

Trading in overnight index swaps the day before yesterday’s employment data showed investors had priced in 12.3 basis points of tightening by the Bank of Canada by its December meeting, data compiled by Bloomberg showed. After the report, the data showed 2.8 basis points of easing was priced in.

Jobs Lost

The loonie slid yesterday as Statistics Canada reported employment fell in January for the first time in six months, dropping by 21,900 jobs following December’s revised gain of 31,200. 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 had projected a 5,000-job gain and 7.2 percent unemployment.

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.

Manufacturing sales fell 0.8 percent in December after rising 1.75 percent the previous month, economists in a Bloomberg survey forecast before the data is reported Feb. 15.

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 gap had been forecast in a Bloomberg survey of economists.

‘Matters More’

“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.”

The loonie fell this week as crude oil lost 2.1 percent to $95.76 and Standard and Poor’s GSCI Index of 24 commodities declined 0.1 percent in its first weekly drop since the five days ended Dec. 7. Raw materials account for almost half of Canada’s export revenue. The S&P 500 Index of U.S. stocks rose 0.3 percent, its lowest weekly gain since Dec. 7.

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.

Beats Euro

The Canadian dollar posted its first five-day gain versus the euro in more than a month. It appreciated 1.5 percent to C$1.3394 after European Central Bank President Mario Draghi said Feb. 7 the euro’s strength may hamper efforts to pull the currency bloc’s economy out of recession, fueling bets the bank may lower interest rates.

“Risk sentiment in general has been hit, especially in Europe, the Spanish equity markets, the periphery equity markets, have all taken on some water, and Canada may have to an extent benefitted because there was no news on it for the longest time,” David Watt, chief economist at the Canadian unit of HSBC Holdings Plc, said yesterday by phone from Toronto.

Even after the jobs report, the Canadian dollar was one of five winners this week in a basket of 10 developed-nation currencies monitored by Bloomberg Correlation-Weighted Indexes. The loonie added 0.4 percent, trailing sterling’s 1.8 percent rise, the U.S. dollar’s 1 percent gain and the yen’s 1.1 percent advance. Australia’s dollar added 0.1 percent. The Swedish krona dropped 1.4 percent and the euro lost 1.3 percent.

Before it's here, it's on the Bloomberg Terminal.