Canada Dollar Rises to 4-Week High as U.S. Jobs Trail Forecast

The Canadian dollar rose to a four-week high against its U.S. counterpart on speculation weaker-than-forecast America jobs gains last month will delay the Federal Reserve from tapering its monetary stimulus.

The loonie, as the Canadian dollar is nicknamed, fell against the majority of its 16 most-traded peers before a Bank of Canada policy meeting tomorrow where the central bank is projected to trim growth forecasts and hold the benchmark policy interest rate at 1 percent. Senior Deputy Governor Tiff Macklem said earlier this month that the nation’s economy will expand more slowly than had been forecast. Canada’s retail sales rose for a second month in August, matching a record set three months earlier, on gains in food and clothing.

“From the positive standpoint, there’s no taper, which suggests the loonie should go up versus the U.S. dollar, but it also proves a bit of a headwind to Canadian growth, to suggest U.S. growth is coming in,” said David Doyle, a strategist at Macquarie Capital Markets, by phone from Toronto. “The loonie, I think, is reacting less positively than some of the other currencies versus the U.S. dollar because of concerns over follow on effects for the Canadian economy.”

The loonie rose 0.2 percent to C$1.0286 per U.S. dollar at 5 p.m. in Toronto, touching the strongest level since Sept. 24. One loonie buys 97.22 U.S. cents.

Options Reading

The cost to insure against declines in the Canadian dollar versus its U.S. peer fell to the lowest in almost five months. The three-month so-called 25-delta risk-reversal rate fell to

1.03 percent, the lowest since May 3. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S. contracts that do the opposite.

The loonie weakened to the lowest point in more than four months against the currency of its commodity-exporting peer, Australia. The currency touched parity with Australia’s dollar for the first time since June 4.

The Canadian dollar has trailed the Australian and New Zealand dollars in the past month among 10 developed nation currencies tracked by the Bloomberg Correlation Weighted Index. The loonie has dropped 1.3 percent compared with the Australian dollar’s 2 percent gain and the New Zealand dollar’s 0.6 percent rise.

“CAD has been lagging other currencies pretty badly,” said Greg Anderson, head of global foreign exchange strategy at Bank of Montreal, by phone from New York. ”The jobs data today says no taper in October for sure, it will take a huge turnaround to taper in December, highly unlikely, and so it pushes out for a long time. And that’s why we’ve seen currencies in general rally against the USD. CAD is an outlier for how little.”

Bonds Gain

Canada’s benchmark 10-year government bond rose, with yields falling seven basis points, or 0.07 percentage point, to

2.48 percent, reaching the lowest level since Aug. 12. The 1.5 percent note maturing in June 2023 added 57 cents to C$91.69.

The debt may outperform similar U.S. debt because central bank governor Stephen Poloz will delay tightening monetary policy until the Fed begins reducing the bond buying program its used to depress interest rates and stimulate the economy. The yield has averaged about five basis points below equivalent U.S. yields this year. The spread will widen to nine basis points below by January, predicts Benjamin Reitzes, a senior economist at BMO Capital Markets.

Poloz, who delivers the Bank of Canada’s interest-rate decision and quarterly monetary policy report at 10 a.m. tomorrow in Ottawa, won’t raise the benchmark rate until at least the end of 2014, while the Fed may begin “tapering” bond purchases as early as March, according to separate Bloomberg News surveys.

Economic Data

Canada’s retail sales increased 0.2 percent to C$40.3 billion ($39.2 billion), Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg News forecast a 0.3 percent gain, based on the median of 20 projections.

The U.S. addition of 148,000 workers followed a revised 193,000 rise in August that was larger than initially estimated, Labor Department figures showed today in Washington. The median forecast of 93 economists surveyed by Bloomberg called for a 180,000 advance. Unemployment fell to 7.2 percent, the lowest level since November 2008. The report, delayed by the 16-day shutdown that ended Oct. 17, was originally slated for Oct. 4.

“The Canadian dollar is outperforming the U.S dollar because such a negative report for jobs in the U.S. means expectations for tapering have been extended a little bit more, which means the U.S. dollar should feel a little bit more pressure against everything, including the Canadian dollar,” said Greg T. Moore, a currency strategist at Toronto-Dominion Bank, by phone from Toronto. “It’s a lower-yielding currency than the Aussie or kiwi and so not going to move as much as those on tapering expectations.”

Canada’s dollar will weaken to C$1.04 by the end of the year, according to the median in a Bloomberg survey of 62 analysts.

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