Bloomberg News

Canadian Dollar Falls on Economic Slowing Before Jobs Report

October 06, 2011

Oct. 6 (Bloomberg) -- Canada’s dollar fell versus a majority of its major peers before domestic and U.S. jobs data that may show the North American economy is faltering.

The loonie, as the Canadian currency it’s nicknamed, touched the lowest level in more than a year against its U.S. counterpart this week on concern a slowing American economy will crimp the nation’s exports of raw materials. The currency underperformed its commodity-linked peers of Australia and New Zealand and Brazil, which rallied along with stocks.

“Investors are very cautious ahead of dual payroll numbers and expectations are sliding lower for both reports,” said Blake Jespersen, director of foreign exchange in Toronto at Bank of Montreal, by e-mail. “I don’t think the Canadian dollar selling is overdone. I think it will slide lower.”

The Canadian currency dropped against 14 of its 16 major peers, falling the most, or 2.6 percent, against the Brazilian real. It rose 0.3 percent to C$1.0371 per U.S. dollar at 5 p.m. in Toronto, compared with C$1.0402 yesterday. It touched C$1.0658 on Oct. 4, the weakest level since August 2010. One Canadian dollar buys 96.42 U.S. cents.

BMO’s Jespersen predicted the currency would hit a floor at around C$1.12.

Canadian employers added 15,000 jobs in September after cutting 5,500 positions in August, according to the median of 25 estimates compiled by Bloomberg. That would mean employers added 16,500 jobs in the third quarter, compared with 109,000 in the second quarter and 82,800 in the first three months of the year. Statistics Canada is due to report the employment data tomorrow at 7 a.m. in Ottawa.

Jobs

U.S. businesses added 90,000 workers to payrolls in September, according to the median forecast of economists surveyed by Bloomberg. The unemployment rate was 9.1 percent for a third consecutive month, the survey showed.

The loonie fell today against its commodity-linked peers as investors sold the loonie to buy the dollars of Australia and New Zealand amid gains in stocks and oil.

“Canada is the low-beta currency within the commodity block so as risk appetite emerges, investors tend to go long the higher-beta currencies and sometimes fund it out of the lower- beta currencies,” said Paresh Upadhyaya, head of Americas G-10 currency strategy at Bank of America Corp. in New York, in a telephone interview today. Beta refers to a currency’s sensitivity to changes in another variable.

The currency extended losses after the European Central Bank failed to cut borrowing costs and domestic building permits unexpectedly fell.

‘Massive Threat’

“The underlying sentiment is: global economy slowing, central banks struggling to find further measures to ease and the global financial system is a massive threat to the global economy and nobody has done anything to stabilize it,” said Kit Juckes, head of foreign-exchange research in London at Societe Generale SA, by phone from London.

European Central Bank officials left their benchmark rate at 1.5 percent, as predicted by 41 of 52 economists in a Bloomberg News survey. ECB President Jean-Claude Trichet said the region’s economy is facing “intensified downside risks,” and said the central bank will resume covered-bond purchases and reintroduce year-long loans for banks as the sovereign debt crisis threatens to freeze money markets.

Government bonds fell, pushing the 10-year yield eight basis points higher to 2.22 percent. The yield touched a record low 1.994 percent on Oct. 4.

‘Wouldn’t Buy

Canadian building permits fell for a second consecutive month in August. The value of municipal permits fell 10.4 percent to a seasonally adjusted C$5.9 billion ($5.7 billion), following a revised 0.4 percent decline in July, Statistics Canada said today in Ottawa. The drop was larger than any of the 12 responses to a Bloomberg survey of economists, which had a median forecast for a 0.3 percent advance.

“I wouldn’t buy the Canadian dollar” at these levels, Societe Generale’s Juckes said. “You wouldn’t want to own the Canadian dollar until you had some comfort that the global risk environment was improving or the global economy wasn’t getting worse.”

--Editor: Paul Cox, Dave Liedtka

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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