Bloomberg News

Canada Dollar Gains to 3-Month High as U.S. Jobs Beat Forecasts

February 03, 2012

Feb. 3 (Bloomberg) -- Canada’s currency advanced to its strongest in three months versus the U.S. dollar as payrolls in America, the nation’s biggest trade partner, rose more than forecast and its jobless rate fell to the lowest since 2009.

The currency, called the loonie for the image of the aquatic bird on the C$1 coin, extended gains as another report showed U.S. service industries grew at the fastest pace in a year. It had weakened earlier after data showed Canada’s employers added fewer jobs in January than economists forecast. The loonie gained for a fourth week, its longest winning streak since October, as appetite for risk increased.

“Canada’s major trading partner had data that came out that was very positive, and that has impacted a risk-on sentiment,” said David Watt, senior currency strategist at Royal Bank of Canada’s RBC Capital Markets unit in Toronto.

The Canadian currency appreciated 0.6 percent to 99.34 cents per U.S. dollar at 5 p.m. in Toronto and reached 99.28 cents, the strongest since Oct. 31. The loonie, which declined 0.4 percent earlier to C$1.0034, gained 0.9 percent this week. One Canadian dollar buys $1.0066.

The currency strengthened beyond its 200-day moving average against the greenback, now 99.63 Canadian cents, for the first time since September. In technical analysis, the use of charts to predict stock moves, surpassing a moving average is a signal an asset may continue to rise.

The loonie may now advance to 98.92 Canadian cents per dollar and then to 98 cents, RBC’s Watt said.

Major Counterparts

The loonie strengthened against the majority of its 16 most-traded counterparts. South Africa’s rand and Mexico’s peso were the top performers, while the U.S. dollar and yen fell versus most major peers as haven demand waned.

“The Canadian dollar reversed all of the weakness that we saw after the labor-force survey in Canada, which was relatively weak,” Charles St-Arnaud, an economist and foreign-exchange strategist at Nomura Securities in New York, said in a telephone interview.

Stocks climbed, with the Standard & Poor’s 500 Index rising 1.5 percent and the MSCI World Index advancing 1.1 percent.

Canada’s government bonds dropped for a third day, pushing the yield on the benchmark 10-year note up the most this year. It climbed as much as nine basis points, or 0.09 percentage point, the biggest jump since Dec. 20, to 2.03 percent, the highest level since Jan. 26. It closed at 2.02 percent. The yield difference between the securities and comparable U.S. Treasuries narrowed to nine basis points, from 12 yesterday.

Employment Data

The loonie erased losses as Labor Department data in Washington showed U.S. payrolls swelled by 243,000 jobs last month, following a revised increase of 203,000 in December. The median forecast in a Bloomberg News survey was for an addition of 140,000. The unemployment rate fell to 8.3 percent, from 8.5 percent.

The growth cast doubt on the Federal Reserve’s pledge to hold interest rates at virtually zero until late 2014.

U.S. service industries, which account for about 70 percent of the economy, expanded in January more than forecast. The Institute for Supply Management’s non-manufacturing index rose to 56.8 from a revised 53 in December, versus the 53.2 projected in a Bloomberg survey. Readings above 50 signal expansion.

Canada’s jobless rate rose to 7.6 percent in January, from 7.5 percent in December. Employers added a net 2,300 jobs, following a revised gain of 21,700 in December, the nation’s statistics agency said today. Economists surveyed by Bloomberg News had forecast the unemployment rate would hold steady and that 22,000 positions would be added.

“Another disappointing number,” said Blake Jespersen, director of foreign exchange at Bank of Montreal in Toronto, in a telephone interview.

Parity With Greenback

The loonie touched a level stronger than parity with the U.S. dollar on Jan. 26 for the first time since November. It slid 2.3 percent in 2011.

The currency rose 1.1 percent against the greenback last week as commodities gained after the Fed pledged to extend its freeze on U.S. interest rates. The benchmark has been zero to 0.25 percent since December 2008, compared to Canada’s 1 percent rate. Fed policy makers said the option for further moves to stimulate the economy remained open.

Canada’s dollar gained 2.6 percent over the past three months against nine developed-nation counterparts monitored by Bloomberg Correlation-Weighted Currency Indexes. The U.S. dollar rose 1 percent, while the euro dropped 4.4 percent. The New Zealand and Australian dollars were the top performers, climbing 6.7 percent and 4.9 percent.

--Editors: Greg Storey, Dennis Fitzgerald

To contact the reporters on this story: Austen Sherman in New York at asherman18@bloomberg.net; 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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