The Canadian dollar rose to the highest level in a month versus its U.S. counterpart as employers added almost six times as many jobs as forecast in November, countering recent signs of an economic slowdown.
The currency strengthened versus the majority of its 16 most-traded peers after Bank of Canada Governor Mark Carney kept his bias to raise interest rates, saying economic growth will accelerate next year. Canada’s dollar extended gains late yesterday after Canada approved Cnooc Ltd. (883)’s $15.1 billion takeover of Nexen Inc. (NXY) and Petroliam Nasional Bhd.’s C$5.2 billion ($5.2 billion) takeover of Progress Energy Resources Corp. (PRQ) The policy-setting U.S. Federal Open Market Committee is forecast to increase asset purchases at their final meeting of the year, Dec. 11-12 in Washington.
“A defiant loonie strengthened against an otherwise stronger greenback,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. (WU:US), wrote in a note to clients. “Expectations for an eventual rate rise were justified. Risk sentiment could overshadow a sparse slate of local economic data to set the course for the loonie in the coming week.”
The loonie, as the currency is nicknamed for the image of the aquatic bird on the C$1 coin, appreciated 0.6 percent to 98.84 cents per U.S. dollar this week in Toronto. It touched 98.77 cents yesterday, strongest since Nov. 7. One Canadian dollar buys $1.0117.
The loonie traded between 99.62 and 99.06 cents the prior week, the narrowest range since September 1996.
Canadian government bonds fell after rising the most in two months last week, with 10-year bond yields gaining one basis point, or 0.01 percentage point, to 1.71 percent. The 2.75 percent security maturing in June 2022 declined 11 cents to C$109.08.
The currency strengthened as Canadian employment increased 59,300 and the unemployment rate dropped to 7.2 percent from 7.4 percent, the first decline in five months, Statistics Canada said yesterday in Ottawa. Economists surveyed by Bloomberg News projected a 10,000 gain in jobs and 7.4 percent unemployment, according to the median forecasts.
Carney said on Dec. 4 that economic growth will accelerate next year after temporary disruptions in energy output and weak global demand curbed the country’s expansion. The central bank kept the benchmark rate on overnight loans between commercial banks at 1 percent, where it’s been for more than two years.
“They held onto their hawkish bias, which was definitely a positive for the Canadian dollar,” Sireen Harajli, a foreign- exchange strategist in New York at Credit Agricole SA (ACA), said in a telephone interview. The Bank of Canada’s comments were “in line with expectations and continued to reiterate the fact that the central bank might have to raise rates at some point.”
Futures traders decreased their bets that the Canadian dollar will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the Canadian dollar compared with those on a drop -- so-called net longs -- was 57,071 on Dec. 4, compared with net longs of 62,379 a week earlier.
The Canadian economy has shown signs of slowing, with gross domestic product for the third quarter growing at a 0.6 percent annualized pace, down from 1.7 percent the prior month and lagging behind the 0.8 percent median forecast in a Bloomberg survey of 26 economists. The country’s current account deficit widened to the second largest on record from July through September as exports fell faster than imports and manufacturing slowed.
The jobs report “was a positive for the Canadian economy, but it may be an overreaction,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York, said in a telephone interview. “The number doesn’t change the fact the Canadian economy is still likely to grow quite modestly due to a slump in commodity demand and an interest-rate hike is still sometime away, despite what Carney wants.”
The loonie rose as employment in the U.S., Canada’s largest trade partner, climbed by 146,000 following a revised 138,000 gain in October that was less than initially estimated, Labor Department figures showed yesterday in Washington. The median estimate of 91 economists surveyed by Bloomberg called for a gain of 85,000. The unemployment rate fell to 7.7 percent, the lowest since December 2008, as size of the labor force shrank.
“The data was better than worst fears,” Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York, wrote in a note to clients. “The market is reacting positively.”
The loonie also rose as a few dozen Republicans joined a bipartisan push to break an impasse between U.S. President Barack Obama and House Speaker John Boehner over taxes for the highest-earning Americans, signing a letter calling for openness to “all options.”
Lawmakers are attempting to avert a so-called fiscal cliff of more than $600 billion in tax increases and federal spending cuts scheduled to take effect in January 2013 that threaten to drag the U.S. economy into recession.
Canada’s currency has gained 1.4 percent this year versus nine developed-nation peers tracked by Bloomberg Correlation- Weighted Indexes. The greenback has dropped 2.2 percent and the yen has been the biggest loser, tumbling 9.5 percent. New Zealand’s dollar leads gainers, up 5.5 percent.
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