Bloomberg News

Canadian Currency Falters as Jobless Rate Signals Slowing Growth

January 09, 2012

Jan. 7 (Bloomberg) -- The Canadian dollar declined on speculation that growth in the nation’s economy is cooling as the euro-area debt crisis lingers.

The currency, nicknamed the loonie, dropped this week against its commodity-linked peers of Australia and New Zealand even as crude ended the week above $100 a barrel. Canada’s employers added fewer jobs than economists predicted and the jobless rate climbed for a third month. The Bank of Canada is due to release its quarterly business outlook survey on Jan. 9.

“We’re not seeing strong support for the loonie at all,” said Dean Popplewell, head analyst in Toronto at the online- currency trading firm Oanda Corp., in a telephone interview. “I would be very comfortable to short the loonie at these levels.” A short is a bet the price of an asset will go down.

Canada’s currency depreciated 0.8 percent to C$1.0284 per U.S. dollar yesterday in Toronto, from C$1.0213 on Dec. 30. It touched C$1.0077 on Jan. 3, the strongest level since Dec. 8. One Canadian dollar buys 97.24 U.S. cents.

The Standard & Poor’s 500 Index gained 1.6 percent and the S&P/TSX Composite Index advanced 1.9 percent. Futures on crude oil, the nation’s largest export, posted a weekly close above $100 a barrel for only the second time since June, ending yesterday at $101.92 a barrel in New York.

Canadian government bonds were little changed on the week. Yields on the benchmark 10-year note closed yesterday at 1.937 percent, compared with 1.941 percent on Dec. 30. The 3.25 percent securities due in June 2021 rose 2 cents to C$111.28.

Euro Tumbles

Canada will sell C$3.5 billion ($3.4 billion) of bonds maturing in May 2014 on Jan. 11. The previous auction of two- year debt on Dec. 7 fetched an average yield of 0.937 percent and a coverage ratio, the amount bid for every unit of debt sold, of 2.527 times. The average ratio over the past five two- year auctions is 2.49 times.

The euro fell to an 11-year low against the yen and touched the lowest since January 2011 versus the loonie amid concern that some of the region’s countries may struggle to fund themselves. France sold 7.96 billion euros ($10.2 billion) of debt on Jan. 5 as borrowing costs rose in the country’s first bond auction of the year. Italy and Spain have auctions planned for next week.

“The biggest worry, obviously, will be what happens in Europe refunding next week,” said Oanda’s Popplewell. “That’s what’s on everyone’s radar at the moment.”

Jobless Rate

The loonie fell yesterday to the weakest level this year after Statistics Canada said Canada’s jobless rate increased to 7.5 percent from November’s 7.4 percent and the recent low of 7.1 percent in September. Employment rose by 17,500 in the first gain in three months. The median forecast of 24 economists in a Bloomberg News survey of analysts and economists was for a 7.4 percent jobless rate and a 20,000 job gain.

Investors should buy the Canadian dollar against yen as the U.S. economy improves and the outlook for Japan dims, according to Royal Bank of Scotland Group Plc.

The Canadian currency may strengthen to 79.5 yen within three months, according to Robert Sinche, global head of foreign-exchange strategy at RBS in Stamford, Connecticut. The last time the loonie traded at that level was on Oct. 31.

“We think the Canadian dollar has some good upside, particularly versus the yen,” Sinche said in a Jan. 5 telephone interview. He recommends buying the loonie at 75.75 yen and selling if there is a two-day close below 74.55 yen.

The Canadian dollar was down 1 percent at 74.84 yen in Toronto. It touched 74.73 yen on Jan. 2, the lowest level since Nov. 28.

U.S. Beats Forecasts

The U.S. added 200,000 jobs last month following a revised 100,000 gain in November that was smaller than initially estimated, Labor Department figures showed. The median forecast in a Bloomberg News survey called for a December gain of 155,000. The unemployment rate unexpectedly fell to 8.5 percent, the lowest since February 2009, while hours worked and earnings climbed.

The U.S. number “continues to contribute to some of the optimism that’s been in the U.S. data,” Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, said in a telephone interview yesterday. “It serves to show the divergence of economics and fundamentals between this side of the Atlantic and the other side of the Atlantic.”

Spitz predicted both the greenback and the loonie would outperform major counterparts into the new year.

--With assistance from Rob Williams and Caroline Salas Gage in New York. Editors: Kenneth Pringle, Dennis Fitzgerald

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

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


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