Bloomberg News

Canada Dollar Declines as U.S. Employment Growth Trails Forecast

July 06, 2012

The Canadian dollar weakened against its U.S. counterpart even as a report showed employment increased faster than forecast in the world’s 10th-largest economy.

The loonie, as the currency is nicknamed, strengthened versus most of its 16 major peers after the nation’s payrolls rose by 7,300 in June, Statistics Canada said today from Ottawa, and the jobless rate fell to 7.2 percent from 7.3 percent in May. Employers in the U.S. hired fewer workers than forecast in June, showing the labor market is making scant progress toward reducing joblessness in America, which is Canada’s largest trading partner.

“Global factors dominate for the Canadian dollar,” said Andrew Cox, a currency strategist in New York at Citigroup Inc. “A situation where the global economy is growing slowly, but not decelerating enough to warrant further unorthodoxy from the Fed, is likely a U.S. dollar-positive scenario.”

Canada’s dollar fell 0.5 percent to C$1.0196 per U.S. dollar at 5 p.m. in Toronto. One Canadian dollar buys 98.08 U.S. cents.

The Standard & Poor’s 500 Index fell 0.9 percent and futures on crude oil, Canada’s largest export, tumbled 3.5 percent to $84.14 a barrel in New York.

Bonds Gain

Government bonds rose, with the yield on the nation’s 10- year benchmark bonds dropping three basis points, or 0.03 percentage point, 1.69 percent. The Bank of Canada will sell C$3.4 billion ($3.3 billion) of five-year notes on July 11. The bonds mature Sept. 1, 2017 and carry a coupon of 1.5 percent.

Today’s jobs data add to evidence Canada’s economy picked up momentum in the second quarter, following a slowdown that began at the end of last year. Economists surveyed by Bloomberg predicted the unemployment rate would remain unchanged and employment would rise 5,000.

“It’s a mixed report, not bad news, but far from great news,” Citigroup’s Cox said. “The particulars of the report will likely have only a minor influence on the trajectory of the Canadian dollar in the coming weeks.”

Canada’s economy expanded at an annualized pace of 1.9 percent during the past two quarters, after averaging growth of 3 percent growth since the country emerged from its recession in 2009. The country has added 155,500 jobs since February.

Central Bank

Investors have been paring bets Bank of Canada Governor Mark Carney will lower interest rates as concerns over Europe’s debt crisis ease. Swaps trading suggest investors are pricing in a 31 percent chance that Carney will lower borrowing costs by at least 25 basis points this year, down from 76 percent odds on June 1.

Carney has held the benchmark rate at 1 percent since September 2010, the longest pause since the 1950s. The BOC will update its forecasts in a monetary policy report to be published July 18.

The loonie reached a two-year high against the euro yesterday as the European Central Bank cut interest rates to stimulate the bloc’s economies yesterday, while China cut interest rates for the second time in a month and the Bank of England said it would expand its asset purchase program.

U.S. payrolls rose 80,000 last month after a 77,000 increase in May, Labor Department figures showed today in Washington. Economists projected a 100,000 gain, according to the median estimate in a Bloomberg News survey. The unemployment rate held at 8.2 percent.

“I think everyone expected a sluggish number,” said John Doyle, director of markets in Washington at currency-trading firm Tempus Consulting Inc., said in a telephone interview. “There’s really no reason to be owning higher-yielding currencies this week.”

The loonie has gained 2 percent this year among 10 developed-nation currencies in Bloomberg Correlation-Weighted Indexes, with the U.S. dollar also adding 1.8 percent.

-- Editors: Paul Cox, Greg Storey

To contact the reporter on this story: Lindsey Rupp in New York at lrupp2@bloomberg.net

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


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