Bloomberg News

Canada Dollar Gains First Time in Six Weeks on Jobs, Rate Wagers

June 09, 2012

Canada’s dollar rose for the first time in six weeks against its U.S. peer after the central bank quelled speculation about interest-rate cuts and as employers added more jobs to payrolls than economists predicted.

The currency added to weekly gains yesterday before Chinese economic data that may show the world’s second-largest economy is slowing. Canada’s dollar strengthened against the majority of its most-traded peers before the nation auctions three-year debt next week.

“The Bank of Canada is reluctant to cut,” Mary Nicola, a New York-based currency strategist at BNP Paribas SA, said in a phone interview. “The market priced all those cuts out -- that helped the Canadian dollar. The positive risk momentum as well helped, and the jobs numbers were somewhat supportive.”

Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, gained 1.4 percent this week to C$1.0266 per U.S. dollar, after weakening to C$1.0447 to start the week, the lowest level since November. One Canadian dollar purchases 97.41 U.S. cents.

The currency, which strengthened to a seven-month high of 98 cents per U.S. dollar on April 27, will retrace its steps as far as parity by the end of the year, according to the median forecast in a Bloomberg News survey of 41 economists.

Ten-year government bonds fell for the first time in six weeks, pushing the yield up 18 basis points, or 0.18 percentage point, to 1.81 percent. It touched 1.615 percent on June 1, the lowest since 1950, according to Bloomberg and Bank of Canada data.

The government will sell $2.9 billion of three-year securities on on June 13, the central bank said on its website. The 1.5 percent securities mature in August 2015.

‘Modest Withdrawal’

Traders reduced wagers that the Bank of Canada will cut interest rates this year after policy makers said in a June 5 statement “some modest withdrawal of the present considerable monetary policy stimulus may become appropriate.” The central bank left its benchmark overnight rate unchanged at 1 percent, as predicted by all 27 forecasters in a Bloomberg survey.

As of yesterday, investors were pricing in about seven basis points of central-bank easing by year-end, compared with 31 basis points priced in at the end of last week, according to Bloomberg calculations on overnight index swaps.

There’s a 26 percent chance of at least one quarter- percentage point cut this year, compared with an 83 percent chance on June 1, swaps trading shows.

Jobs Gains

Canada, the world’s 10th largest economy, added 7,700 jobs last month, Statistics Canada said yesterday in Ottawa, following monthly gains of 58,200 and 82,300. An addition of 5,000 jobs was forecast in a Bloomberg survey.

The People’s Bank of China reduced benchmark interest rates for the first time since 2008 on June 7, spurring speculation economic data due to be released today is weaker than policy makers expected. China’s fixed-asset investment probably expanded at the slowest pace in a decade in May, gains in consumer prices matched a two-year low and industrial output grew less than 10 percent for a second month, Bloomberg economist surveys show.

Bloomberg Correlation Weighted Indexes show the loonie rose 0.2 percent this week, beating out five of nine major counterparts. The U.S. dollar dropped 0.9 percent. The yen depreciated 2.9 percent.

Crude oil, Canada’s biggest export, rose for the first time in six weeks, gaining 1.1 percent to $84.10 per barrel in New York. Raw materials including oil account for about half of Canada’s export revenue.

“The Canadian dollar had a brief and modest rally this week, but the tone is still quite negative,” Blake Jespersen, director of foreign exchange in Toronto at Bank of Montreal (BMO), said in an e-mail. “We’re staying fairly flat.” Jespersen predicted the Canadian dollar will trade between C$1.01 and C$1.05 over the next month.

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

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


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