Canada’s currency weakened for a second day against its U.S. counterpart as employment unexpectedly dropped, fueling concern the world’s 11th-largest economy is slowing and the central bank will take longer to raise interest rates.
The currency traded weaker than parity with the U.S. dollar for the first time in five days. The Canadian dollar fell earlier against the majority of its most-traded peers even as strong trade data from China buoyed the currencies of other commodity exporters. The Bank of Canada has kept its key rate at 1 percent since 2010 to spur the economy.
“Markets will probably will react a little negatively just because of the headline figure,” said David Madani, an economist at Capital Economics, in a telephone interview from Toronto. “I don’t think markets will overall react too strongly to this. I think economists have circulated the view we’ve had really unusually strong growth previously in employment and there tends to be some payback or correction.”
The loonie, as the Canadian dollar is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.4 percent to C$1.0023 per U.S. dollar at 8:46 a.m. in Toronto. It touched C$1.0031, the weakest level since Jan. 31.
Employment fell in January for the first time in six months, dropping by 21,900 jobs following December’s gain of 31,200, Statistics Canada said today in Ottawa. The unemployment rate fell to 7 percent from 7.1 percent, the lowest since December 2008’s 6.8 percent, as fewer people looked for work. Economists surveyed by Bloomberg News projected a 5,000 job gain and 7.2 percent unemployment.
BOC Governor Mark Carney said Jan. 23 the need to raise interest rates is less urgent than previously thought because Canada’s economy will take longer to reach full output. Policy makers said an increase in the rate may still be needed over time.
Trading in overnight index swaps before the data was released showed investors priced in 5.4 basis points, or 0.054 percentage point, of tightening by the Bank of Canada by its December meeting.
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