Bloomberg News

Canada’s Currency Declines as America’s Job Market Stagnates

September 02, 2011

Sept. 2 (Bloomberg) -- Canada’s dollar fell for the first time in three days after a government report showed U.S. job growth unexpectedly stalled in August, encouraging demand for a refuge in the greenback.

The currency, also known as the loonie, slid against the Swiss franc and yen as well as the New Zealand dollar on concern Canada’s biggest trading partner is falling back into a recession. Government bonds gained as stocks tumbled.

“It was an ugly number,” said Blake Jespersen, director of foreign exchange at Bank of Montreal, by phone from Toronto. “The Canadian dollar is underperforming on the expectation the U.S. economy is going to continue to slow, and that will have a ripple effect on Canada’s economy.”

The Canadian currency depreciated 0.9 percent to 98.53 cents per U.S. dollar at 5 p.m. in Toronto, from 97.69 cents yesterday. It rallied two days ago to 97.25 cents, the strongest since Aug. 4. One Canadian dollar buys $1.0149. The loonie fell 0.4 percent this week after rising 0.9 percent last week.

The Standard & Poor’s 500 Index dropped 2.5 percent. The S&P/TSX Composite Index slid 0.8 percent. Futures on crude oil, Canada’s biggest export, tumbled 2.6 percent to $86.59 a barrel in New York trading.

U.S. payrolls were unchanged last month, the weakest reading since September 2010, after a gain of 85,000 in July that was less than initially estimated, Labor Department figures showed today. The median forecast of 86 economists in a Bloomberg News survey was for an increase of 68,000. The unemployment rate stayed at 9.1 percent.

Loonie Outlook

Bank of Tokyo-Mitsubishi UFJ Ltd. cut its forecast for the Canadian dollar, which was trading within a cent of a four-week high, to reflect “the deteriorating outlook for the U.S. economy,” said Lee Hardman, a currency strategist at Bank of Tokyo, by phone from London. The currency will depreciate to C$1.02 per U.S. dollar by the end of the year, compared with an August forecast of 95 cents, the firm predicts.

“It reflects the close links between the U.S. and Canadian economy,” Hardman said.

Government bonds rose for a second day, pushing yields on benchmark 10-year securities down nine basis points, or 0.09 percentage point, to 2.30 percent, within five basis points of the all-time low 2.254 percent on Aug. 18. The yields are 29 basis points higher than those on equivalent-maturity Treasuries, the widest spread since November.

Odds that the Bank of Canada will cut rates at its meeting on Sept. 7 rose today to almost one in four after the U.S. employment figures from zero chance yesterday, according to Bloomberg calculations based on overnight index swaps.

The central bank has held its target rate for overnight lending between commercial banks at 1 percent since September 2010 after raising it by a quarter-percentage point at each of three successive meetings.

--Editors: Dennis Fitzgerald, Greg Storey

To contact the reporter on this story: Chris Fournier in Halifax, Nova Scotia, at cfournier3@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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