Canadian Dollar Rises as Economy Adds More Jobs Than Forecast

The Canadian dollar strengthened to the highest level in more than two weeks as the nation added jobs at triple the pace forecast last month, indicating the recovery remains resilient as U.S. employment growth falters.

The currency rose against the majority of its most-traded peers as Statistics Canada said the economy added 59,200 positions in August, compared to the 20,000 forecast in a Bloomberg survey of 22 economists. The unemployment rate fell to 7.1 percent from 7.2 percent. The U.S., the nation’s biggest trading partner, added 169,000 jobs in August, compared to the 180,000 forecast in a separate Bloomberg survey.

“For a while it’s been quite clear the Canadian labor market has recovered to its pre-recessionary position and this data just suggests, that while the Canadian economy has had its issues this year, it still is in better shape than the U.S.,” said Jane Foley, senior currency strategist at Rabobank International, by phone from London. “It’s a combination of disappointing U.S. data and a better Canada number.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, rose 1 percent to C$1.0405 per U.S. dollar at 5:00 p.m. in Toronto. The currency reached C$1.0382, the strongest level since Aug. 20. One loonie buys 96.11 U.S. cents.

Canada’s 10-year benchmark government bond rose for the first time in six days, with yields falling three basis points or 0.03 percentage point, to 2.77 percent. The 1.5 percent security maturing in June 2023 added 27 cents to C$89.25.

Taper Speculation

The U.S. dollar fell against all but one of its most traded peers as slower-than-forecast job growth in that country caused investors to curb bets the Federal Reserve will reduce monetary stimulus, which is thought to depress the greenback, at its Sept. 17-18 meeting.

Part-time employment in Canada rose by 41,800 in August, with full-time jobs rising by 17,400, Statistics Canada said. Service industry employment increased by 40,600 and goods-producing companies hired 18,600.

“You could argue there was a fair degree of part-time job creation, but nevertheless jobs being created, and the fact the participation rate was up and unemployment rate was down obviously contrasts fairly positively with what we saw south of the border,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce, by phone from London. “That has provided the Canadian dollar with some impetus.”

Poloz Forecast

Futures traders increased bets that the Canadian dollar will decline against the U.S. dollar to the most since June 14, 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 Canadian dollar compared with those on a gain, known as net shorts, was 34,639 on Sept. 3, compared with net shorts of 24,959 a week earlier.

Consumer spending underpinned by a housing boom has powered the world’s 11th largest economy since the 2008 global financial crisis. Bank of Canada Governor Stephen Poloz says the expansion needs to shift to business spending from indebted consumers, a process that policy makers said this week is taking longer than they predicted.

The Bank of Canada forecasts third quarter growth at 3.8 percent in its July monetary policy report. Gross domestic product grew 1.7 percent in the second quarter.

Options traders became the least bearish on the Canadian dollar in four weeks. The three-month so-called 25 delta risk reversal rate, which measures the premium charged for the right to buy the U.S. dollar against its Canadian counterpart versus contracts to sell, fell to 1.38 percent, the lowest point since Aug. 9.

Consumer Prices

The Bank of Canada kept its benchmark rate on overnight loans between commercial banks at 1 percent for the 24th consecutive meeting on Sept. 4 and said slack in the economy will start to disappear in 2014.

Business spending and exports have slowed the expansion of the world’s 11th largest economy this year even with recent signs of stronger growth in the U.S. and Europe. Consumer spending has continued to lead growth after warnings from Poloz and Finance Minister Jim Flaherty about record debts taken on at low interest rates.

Consumer prices advanced 1.3 percent in July from a year earlier, the 15th straight month the rate was slower than the bank’s 2 percent target. Output growth slowed to a 1.7 percent annualized pace in the second quarter, including a monthly decline of 0.5 percent in June that was the biggest since the 2009 recession.

The Canadian dollar rose 0.7 percent in the last week against nine developed nation currencies tracked by the Bloomberg Correlation Weighted Indexes. The U.S. dollar is down 0.7 percent and New Zealand’s currency is the biggest gainer with a 3.2 percent rise.

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