Canada Dollar Drops as Yields Hit Lowest in Year on Jobs

Canada’s dollar declined to almost a three-month low and 10-year bond yields sank to the least in a year as the nation’s employers added fewer jobs in July than forecast, increasing concern the economy is faltering.

The currency weakened for a second day versus the U.S. dollar after Statistics Canada said employment increased by 200 jobs, versus a 20,000 gain projected by economists surveyed by Bloomberg News. The unemployment rate fell to 7 percent, from 7.1 percent, as people left the labor market.

The loonie’s decline “is an appropriate response,” Greg Anderson, head of global foreign-exchange strategy at Bank of Montreal, said in a phone interview. “Seeing full-time job loss, and people giving up and leaving the labor force, is disappointing.”

The loonie, as the Canadian currency is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.5 percent to C$1.0973 per U.S. dollar at 5 p.m. in Toronto after touching C$1.0986 on Aug. 6, the weakest since May 5. One loonie buys 91.13 U.S. cents.

Canada’s dollar weakened 0.5 percent in the past five days, its third weekly decline.

The yield on Canada’s benchmark 10-year bond fell one basis point, or 0.01 percentage point, to 2.07 percent after touching 2.03 percent, the lowest since June 2013. It fell five basis points this week and is down from a 2014 high of 2.80 percent on Jan. 2.

Participation Drops

Futures bets by large speculators for the loonie to rise against the U.S. dollar outnumbered bets for it to fall -- called net longs -- by 21,455 contracts as of Aug. 5. Bets fell 5 percent from last week, the first decline in 8 weeks, according to data released today by the Washington-based Commodity Futures Trading Commission.

The jobs gains came after the economy unexpectedly lost 9,400 positions in June. Economists in a Bloomberg survey forecast the unemployment rate would be unchanged.

Bank of Canada policy makers cited weaker participation in the labor market as a sign of slack in the economy, which they said last month will take about two years to eliminate. The July participation rate fell to 65.9 percent, the lowest since October 2001, from 66.1 percent the month before. The number of people in the labor force fell by 35,400.

The composition of employment shifted in July with 60,000 new part-time jobs tempering the loss of 59,700 full-time positions. It was the biggest loss of full-time work since October 2011. Private companies added 26,300 workers as public-sector employment rose by 3,200.

‘Large Move’

Canada’s currency also dropped as U.S. President Barack Obama’s authorization of air strikes in Iraq boosted demand for haven assets, pushing up global bonds and currencies including the yen and Swiss franc.

“We’ve seen a pretty large move over the course of the past three weeks, with the Canadian dollar depreciating against the U.S. dollar,” Mazen Issa, Canada macro strategist at Toronto-Dominion Bank’s TD Securities, said in a phone interview. “The weak employment number today is moving it down even further.”

The currency dropped against most of its major peers Aug. 5 after crude oil, Canada’s biggest export, fell to a six-month low. It fell on July 31 after the government said Canadian gross domestic product in May rose 2.3 percent from a year earlier, matching a Bloomberg forecast.

‘Very Weak’

The jobs report “flies in the face of the GDP data,” Emanuella Enenajor, senior Canada economist at Bank of America Corp. in New York, said in a phone interview. “It’s consistent with a very weak pace we’ve seen in Canada recently.”

The Canadian currency has swung this year between a five-year low and a six-month high as investor speculation fluctuated on when the central bank might raise the benchmark interest rate, which has been held at 1 percent since 2010 to support the economy.

Canada’s dollar lost 2.2 percent in July, the first monthly decline since January, amid concern that its economy lags behind that of the U.S., its largest trading partner. The American economy climbed 4 percent at an annual rate in the second quarter, data showed last month.

“What we’ve seen from the second quarter in the U.S is solid growth, to continue over the course of the year,” Issa said. “The outlook for Canada is further weakness, as growth differentials between Canada and the U.S. become wider.”

Exports Rise

Canada’s currency appreciated 0.4 percent on Aug. 6, erasing earlier losses, after data showed the merchandise trade surplus increased to C$1.86 billion ($1.7 billion), the widest since December 2011. Exports rose 1.1 percent to C$45.2 billion, higher than the C$44.5 billion peak set in 2008 before the last recession.

Bank of Canada Governor Stephen Poloz said he is counting on stronger exports this year and next to lead the economy back to full output.

The currency declined 1.4 percent in the past month, the most after New Zealand’s dollar among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The greenback is the best performer, gaining 1.6 percent, followed by the yen’s 1.2 percent rise. The euro is little changed.

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