Canada Dollar Gains for Third Day on Recovery Speculation

The Canadian dollar gained against its U.S. counterpart for a third day after stronger-than-forecast employment gains sparked speculation the economic recovery is gaining traction.

The Canadian currency rose against the majority of its most traded peers as employment data from both Canada and the U.S., its largest trading partner, exceeded estimates last week. The jobs data followed central-bank Governor Mark Carney’s softened language about tighter policy, saying inflation will “remain low in the near term.” Canadian industrial companies’ use of their production capacity held at almost the highest rate since 2007 last quarter, a report may show this week.

“You can chalk some of the gain up to to Canada’s better-than-expected jobs report,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said by phone. “It is seen giving a shot in the arm to the loonie.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, gained 0.3 percent to C$1.0259 per U.S. dollar at 5 p.m. in Toronto. One loonie buys

97.48 U.S. cents.

Canada’s benchmark 10-year government bond fell for a sixth day, pushing yields up one basis point, or 0.01 percentage point, to 1.94 percent. The 2.75 security maturing in June 2022 dropped nine cents to C$106.79.

‘Overbought Territory’

The loonie will strengthen to C$1.0220 over the next few days and as high as C$1.0160 in the next week, according to George Davis, chief technical analyst for fixed-income and currency strategy at Royal Bank of Canada. That would be the strongest level since Feb. 20.

“The risk of a short-term pullback in U.S. dollar/ Canadian dollar has increased after Friday’s stronger than expected Canadian employment number,” Davis wrote in an e-mail. “This is compounded by the technical valuations, which are in overbought territory on a daily basis.”

Futures on crude oil, the nation’s largest export, was little changed at $92 a barrel in New York after falling 1.2 percent earlier, and are down 5.7 percent over the past month. Western Canada Select, the benchmark for oil-sands bitumen, traded at a discount of $20.50 to U.S. West Texas Intermediate price, down from $27 the week before. The discount reached $42.50 on Dec. 14.

“A narrowing of that spread means Canadian producers capture a larger share of the WTI quote,” David Doyle, an analyst at Macquarie North America in Toronto, said by phone. “In the second half of this year, our analysts expect it to tighten to the high teens.”

Industrial Capacity

Canadian industrial companies used 80.7 percent of their production capacity in the fourth quarter of 2012, Statistics Canada may say on March 14, according to the median forecast in a Bloomberg survey. The 80.9 percent figure in the third quarter was the highest since the third quarter of 2007.

Implied volatility for three-month options on the greenback versus the Canadian dollar reached 6.54 percent, the least since Feb. 20. Implied volatility signals the expected pace of currency swings and is quoted by traders to set prices. Lower volatility correlates with a stronger Canadian dollar versus its U.S. counterpart.

Employment Gain

Canada’s employment rose by 50,700 last month, more than double the highest prediction in a Bloomberg News survey and a median estimate of 8,000. The jobless rate remained at 7 percent, the lowest since December 2008.

“There was a raft of bad data for a couple of weeks out of Canada, and the jobs data cast into doubt the narrative of muted growth that may lead the Bank of Canada to cut interest rates,” Macquarie’s Doyle said.

The loonie declined 0.5 percent on March 6 after the Bank of Canada kept its benchmark rate at 1 percent even as Carney retained the bias that rates will rise over time. He has warned in every policy decision since April that rates could go up, making him the lone Group of Seven central banker who has indicated he might raise interest rates.

Futures traders increased their bets that the Canadian dollar will decline against the U.S. dollar to the highest level since March 2007, figures from the Washington-based Commodity Futures Trading Commission showed on Friday.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the Canadian dollar compared with those on a gain -- so-called net shorts -- was 46,663 on March 5, compared with net shorts of 21,433 a week earlier. That’s the most net-shorts since March 2007.

The loonie has fallen 2.9 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 2.7 percent and the euro has surged 3.9 percent.

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