Canadian Dollar Climbs to Strongest in Six Weeks on Jobs Growth

Canada’s dollar gained to the strongest level in more than six weeks after the economy added more jobs than forecast in March, rebounding from a decline the previous month, and the unemployment rate unexpectedly fell.

The currency, called the loonie, rose versus 10 of its 16 major peers as employment in the U.S., Canada’s biggest trade partner, grew less than projected. The loonie has been the biggest loser this year among major currencies on bets slowing growth would lead the Bank of Canada to wait longer than the Federal Reserve to raise interest rates. The bank meets April 16. Governor Stephen Poloz said March 18 a rate cut might be possible if the economy worsens.

“It was a strong number with strong details, and that’s positive for Canada,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia, said by phone from Toronto. “What we have left is where that leaves Governor Poloz. Should he sound as dovish as he did the other week on April 16, that will resurge the weakness story. Should he sound quite neutral, that will bring further gains for the Canadian dollar.”

The loonie, nicknamed for the image of the aquatic bird on the C$1 coin, gained 0.5 percent to C$1.0981 per U.S. dollar at 5 p.m. in Toronto. It was the strongest closing level since Feb. 18. The currency gained for a second week, appreciating 0.7 percent. One loonie buys 91.07 U.S. cents.

Bonds Rise

Canada’s government bonds rose, pushing the yield on the benchmark 10-year security down the most in three weeks. It fell as much as six basis points, the biggest intraday drop since March 13, to 2.49 percent. The price of the 2.5 percent debt due in June 2024 increased 49 cents to C$100.10.

The Canadian dollar has declined 3.3 percent this year against its U.S. counterpart, the worst performance among 16 major peers. The loonie has fallen 4 percent this year in a basket of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, also the biggest loss. The U.S. dollar declined 0.4 percent, and the euro lost 0.7 percent.

“Some optimism is headed Canada’s way,” Jack Spitz, managing director of foreign exchange at National Bank of Canada, said by phone from Toronto. “The positive impact of having a weaker currency over the past number of months is going to be shown in economic data going forward. We saw it in the trade numbers, and we’re perhaps going to see it in inflation.”

Net Shorts

Hedge funds and other large speculators cut wagers on Canada’s dollar weakening against the greenback, known as net shorts, by 36,590 positions as of March 25 from a week earlier, the most in records going back to 1993, figures from the Washington-based Commodity Futures Trading Commission show. The shift dropped short positions to 33,215 contracts, the least since November, from 69,805.

Net-shorts stayed at almost the fourth-month low in the week ended April 1. They increased by 3,779 contracts to 36,994, according to CFTC data released today.

The Bank of Canada helped send the loonie on its worst annual start in at least 42 years, a loss of 4.5 percent against the greenback in January, after officials’ monetary policy report on Jan. 22 said currency strength was damping exports. The bank’s next policy report is due April 16.

Data yesterday showed Canada’s merchandise trade balance swung to a surplus in February, with rising exports of automobiles and energy outpacing record imports.

Canadian Jobs

The loonie climbed after Statistics Canada said employment in the world’s 11th-largest economy rose by 42,900 jobs, the biggest jump in seven months, and the unemployment rate fell to 6.9 percent from 7 percent. Economists surveyed by Bloomberg News projected a 22,500-job increase and a jobless rate unchanged at 7 percent.

U.S. payrolls rose 192,000 last month after a 197,000 gain in February that was larger than first estimated, the Labor Department reported. The median forecast in a Bloomberg survey was for a 200,000 gain. The jobless rate was unchanged at 6.7 percent, compared with a forecast for a decrease to 6.6 percent.

The Bank of Canada said in a statement March 5 after its last meeting that with consumer-price increases below its 2 percent target, “the downside risks to inflation remain important.” It held its benchmark interest rate at 1 percent.

Inflation has held below the target for 22 straight months, registering 1.1 percent on an annualized basis in February.

The U.S. central bank at a meeting last month made a third cut in its monthly bond-buying, saying there was “sufficient underlying strength” in the economy to support labor-market improvement. Fed Chair Janet Yellen said policy makers may conclude the stimulus program by year-end and raise the key U.S. interest rate from virtually zero about six months later.

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