Canadian Dollar Gains Versus Major Peers on Employment Increases

The Canadian dollar rose versus the majority of its 16 most-traded peers after employment gains in Canada and the U.S. exceeded forecasts, boosting investor risk appetite.

The Canadian currency gained against its U.S. counterpart for a second day as both countries reported unemployment rates at four-year lows. The so-called loonie fell earlier this week after the Bank of Canada softened language about tighter monetary policy and said it won’t raise interest rates anytime soon with inflation slowing more than projected.

“Great numbers for Canada, great numbers for the U.S., which is a plus-plus for the Canadian dollar,” John Curran, senior vice president at Canadianforex Ltd., an online foreign-exchange dealer, said by phone in Toronto.

The loonie, as Canada’s dollar is known for the image of the aquatic bird on the C$1 coin, appreciated 0.1 percent to C$1.0287 per U.S. dollar at 5 p.m. in Toronto after gaining as much as 0.6 percent. One Canadian dollar buys 97.21 U.S. cents.

Canada’s benchmark 10-year government bond fell for a fifth day, with yields rising five basis points, or 0.05 percentage point, to 1.93 percent. The 2.75 percent security maturing in June 2022 declined 44 cents to C$106.88 after falling to C$106.62, the lowest since Feb.25.

Loonie Bulls

Options traders have become more bullish on the Canadian dollar during the past week. The three-month 25-delta risk reversal rate, which measures the premium charged for the right to buy the U.S. dollar against the loonie versus contracts to sell, traded at 1.3 today, down 8.2 percent this week. It hit 1.5 on Feb. 26, the highest since Sept. 7.

“Bearish sentiment about the Canadian dollar has been building over the last month or so, and these numbers absolutely stopped it in its tracks,” Adam Button, a currency analyst at in Montreal, said by phone. “One data point isn’t going to change the Bank of Canada outlook, but the BOC will be glad that they left a slight hawkish bias.”

Canadian employment rose by 50,700 last month, more than double the highest prediction in a Bloomberg News survey with 22 responses and a median estimate of 8,000. The jobless rate remained at 7 percent, the lowest since December 2008, while economists predicted it would rise to 7.1 percent.

Housing Starts

A separate report showed Canadian housing starts were 180,719 at a seasonally adjusted annual pace in February, Ottawa-based Canada Mortgage & Housing Corp. said on its website today. Economists forecast a reading of 175,000 according to the median of 20 responses to a Bloomberg News survey.

Employment in the U.S. increased 236,000 last month after a revised 119,000 gain in January that was smaller than first estimated, Labor Department figures showed in Washington. The median forecast of 90 economists surveyed by Bloomberg projected an advance of 165,000. The jobless rate dropped to 7.7 percent from 7.9 percent.

“Job numbers look good in North America, and that could lead the way to encourage the market to add risk to their portfolios,” Dean Popplewell, a currency analyst at Oanda Corp, said by phone from Toronto. “Momentum should favor growth currencies in Canada and Mexico.”

Mexico’s peso gained 1 percent to 12.6267 to the dollar, the biggest gain among major currencies. The U.S. is the largest trading partner of both Canada and Mexico.

Carney’s View

The loonie declined 0.5 percent on March 6 after Bank of Canada Governor Mark Carney softened language about tighter policy for the second meeting in a row, saying inflation will “remain low in the near term” in an economy with “material excess capacity.” Carney retained the warning rates will rise over time amid speculation it would be dropped entirely. The central bank kept its benchmark rate at 1 percent.

“With the direction the Bank of Canada is implying to the market, we are looking for the Canadian dollar to weaken off in the coming months,” Canadianforex’s Curran said. The employment gains are “going to be a short-term plus for the Canadian dollar,” he said.

The loonie has fallen 3.1 percent during the past six months among the 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The U.S. dollar has gained 2.4 percent and the euro has surged 4.1 percent.

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