Bloomberg News

Canada Dollar Trades at Almost Parity Before Jobs Report

May 10, 2012

Canada’s dollar traded at almost parity with its U.S. counterpart before a government report tomorrow that economists predict will show that employment growth is slowing.

The currency climbed earlier after two days of losses incurred amid speculation Europe’s debt crisis would worsen after France elected a socialist president and as Greece struggled to form a new government. It pared gains after stocks retreated from the highs of the day. Canada’s trade surplus widened less than forecast in March, data showed.

“Risk is fading,” Steve Butler, managing director in Toronto at Bank of Nova Scotia’s Scotia Capital unit, said via e-mail. The U.S. dollar-Canadian dollar exchange rate “had a decent correction lower this morning, now it’s resuming the uptrend,” he said, referring to the direction of the greenback’s moves.

The Canadian currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, appreciated less than 0.1 percent to C$1.0021 per U.S. dollar at 5 p.m. in Toronto. It advanced as much as 0.5 percent, the biggest intraday jump since April 25, to 99.77 cents after falling yesterday to C$1.0063, the weakest since January. One Canadian dollar purchases 99.79 U.S. cents.

The currency weakened below a one-for-one basis with the U.S. dollar on May 8 for the first time in three weeks, after reaching 98 cents on April 27, the strongest since September. It has lost 0.5 percent this week.

The MSCI World Index of stocks was up 0.3 percent in its first gain in seven days, after rising as much as 0.8 percent earlier. The Standard & Poor’s 500 (SPX) Index advanced 0.3 percent, paring a 0.8 percent gain.

Aid to Greece

The loonie gained earlier versus most of its major peers as Europe’s bailout fund confirmed the next installment of aid to Greece was received, easing concern that the country at the center of the debt crisis will default. Greek voters at elections over the weekend revolted at austerity measures.

Canadian 10-year government bonds erased losses. Yields on the benchmark securities were 1.98 percent, after increasing as much as four basis points, or 0.04 percentage point, to 2.03 percent. They fell to as low as 1.93 percent yesterday, the least since Feb. 3. Two-year note yields increased two basis points today to 1.24 percent.

Employers added 10,000 jobs last month, according to the median forecast of economists surveyed by Bloomberg before Statistics Canada reports the data tomorrow. Employment grew in March by 82,300. The jobless rate rose to 7.3 percent in April, from 7.2 percent, economists projected.

Loonie May Gain

The Canadian dollar may strengthen versus its U.S. counterpart if employment improves, according to Adam Cole, global head of foreign-exchange strategy in London at Royal Bank of Canada’s RBC Capital Markets unit. The loonie has dropped 1.5 percent this month as traders trimmed bets the Bank of Canada will raise interest rates by September.

Odds of the central bank boosting its 1 percent benchmark interest rate by the Sept. 5 policy meeting dropped to 43 percent today, from 75 percent on April 27, according to Bloomberg calculations on overnight index swaps. Chances were 19 percent on April 16, the day before policy makers suggested rates would be raised sooner than economists expected as slack in the economy evaporated.

“Having overshot to the upside in terms of rate increases priced in, we’ve probably now overshot in the other direction,” Cole said in a telephone interview. “A run of decent, even half-decent domestic data might get us running back toward sensible levels for expectations of rate hikes. A run of good domestic numbers could be Canadian-dollar positive.”

‘Weaker Number’

Scotia’s Butler said he’s “concerned about the topside” in the U.S.-Canada exchange rate, meaning he believes the balance of risks favors a drop in the Canadian dollar after the jobs data tomorrow.

“The market is looking for a weaker number,” he said. “The risks are for spot Canadian dollar to break the C$1.0050 to C$1.0070 resistance area. If that goes, I think we see the C$1.0020 to C$1.0050 area.” Resistance is an area on a chart where orders may be clustered.

The Canadian dollar gained 1.1 percent over the past month versus nine developed-nation counterparts monitored by Bloomberg Correlation-Weighted Indexes. The U.S. dollar advanced 0.8 percent, and the euro fell 0.4 percent.

The nation’s trade surplus widened in March to C$351 million ($350 million) from a revised C$273 million in February, Statistics Canada said today in Ottawa. A Bloomberg survey had forecast a C$500 million surplus. It was the fifth straight surplus, the longest run since the last recession.

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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