Canada Dollar Gains as Stimulus Pledge Spurs Appetite for RiskJohn Detrixhe and Cecile Gutscher
The Canadian dollar rose against its U.S. counterpart as investors sought higher-yielding currencies amid speculation that gains in American payrolls won’t keep the Federal Reserve from maintaining stimulus to sustain growth.
The currency reversed an initial drop made after the Labor Department said U.S. employers added more jobs in April than forecast. The Federal Open Market Committee said May 1 it will maintain its bond buying under the quantitative-easing stimulus strategy at a pace of $85 billion a month until the labor-market outlook “has improved substantially.”
“Nonfarm was strong, but not strong enough to bring in expectations of QE tapering,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia, said by telephone from Toronto. “It’s a strong enough report, but it’s not strong enough to shift the expectations of the FOMC.”
The loonie, as Canada’s dollar is known for the image of the aquatic bird on the C$1 coin, gained 0.3 percent to C$1.0080 per U.S. dollar at 5 p.m. in Toronto. The currency, which weakened 0.3 percent earlier, has gained 0.9 percent this week. One Canadian dollar buys 99.21 U.S. cents.
Futures traders decreased their bets that the Canadian dollar will decline against the greenback, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the dollar compared with those on a gain -- so-called net shorts -- was 67,848 on April 30, compared with net shorts of 71,679 a week earlier.
Crude oil, the nation’s largest export, gained to a one-month high as risk appetite increased, and stocks rose. Crude for June delivery climbed as much as 2.2 percent to $96.04 a barrel in New York, the highest level since April 3. The Standard & Poor’s/TSX Composite Index, Canada’s benchmark equity gauge, gained 0.5 percent.
The nation’s government bonds slid, with benchmark 10-year bond yields climbing 10 basis points, or 0.10 percentage point, to 1.77 percent. The price of the 1.5 percent security due in June 2023 fell 88 cents to C$97.55.
U.S. payrolls increased by 165,000 nonfarm jobs last month, versus a 140,000-position median forecast of 90 economists surveyed by. The jobless rate unexpectedly declined to a four-year low of 7.5 percent, from 7.6 percent in March. Economists forecast no change.
Canada’s currency weakened yesterday after Stephen Poloz was named to head as head of the Bank of Canada amid concern the appointment may signal a weaker currency and lower borrowing costs as the world’s 11th-largest economy looks to exports to revive growth.
Poloz, the former chief executive officer of Export Development Canada, a trade financing agency, was named yesterday by Finance Minister Jim Flaherty, who bypassed Deputy Governor Tiff Macklem for the top job to replace Mark Carney.
Canada’s central bank is alone among Group of Seven nations with a tightening bias, meaning its next move on interest rates will likely be higher. The Bank of Canada has kept its benchmark overnight rate target at 1 percent since September 2010.
Poloz is “historically a trade guy, so he may favor a weaker Canadian dollar to favor exporters,” Jonathan Lemco, senior sovereign-debt analyst at Valley Forge, Pennsylvania-based Vanguard Group Inc., the largest provider of U.S. bond funds, said in a telephone interview.