The Canadian dollar strengthened to a six-week high versus its U.S. counterpart before employment data tomorrow forecast to show job gains last month in the U.S. and Canada.
The currency rallied to the strongest since 2008 against the yen after Bank of Japan Governor Haruhiko Kuroda took measures that would devalue the currency in his fight against deflation. Canada created 6,500 jobs in March from 50,700 the previous month, while the U.S. added 190,000 from 236,000 the month before, according to separate Bloomberg surveys of economists. U.S. weekly jobless claims exceeded forecasts last week, fueling speculation the government figures may trail projections as well.
“We see a little bit of further weakness in some oil prices and gold, a little bit of further weakness in Toronto equities and the currency has actually strengthened a little bit,” said Doug Porter, chief economist at Bank of Montreal by phone from Toronto. “We’ve had the trauma in Cyprus and we have the Bank of Japan trying to actively weaken the yen, and in a world such as that, the Canadian dollar looks like a relatively safe harbor.”
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, gained 0.2 percent to C$1.0127 per U.S. dollar at 5 p.m. in Toronto, reaching the strongest level since Feb. 19. One loonie buys 98.75 U.S. cents. The currency gained 3.7 percent to 95.12 yen, touching the most since Oct. 6, 2008.
“This whole day has been about selling yen, and now you’ve seen a lot of the other currencies start to play a part in the move,” Matthew Perrier, managing director of foreign exchange at Bank of Montreal, said by phone from Toronto. “It’s selling of yen across the board on the back of the aggressive quantitative easing measures that the BOJ delivered.”
Canada’s benchmark 10-year government bonds gained, pushing yields down four basis points, or 0.04 percent, to 1.79 percent. The 1.5 percent note maturing in June 2023 added 33 cents to C$97.32.
Crude oil, Canada’s largest export, fell 1.2 percent to $93.36 per barrel in New York, after reaching its lowest point since March 22. The Standard & Poor’s Index of 500 U.S. stocks gained 0.4 percent.
The loonie rose against the yen after the Bank of Japan (8301) doubled its monthly bond purchases to 7.5 trillion yen ($77.8 billion) of bonds a month and double the monetary base, which includes in Kuroda’s first policy meeting as governor today.
“That upward momentum in the CAD/yen cross may have some more legs moving forward, given that the BOJ is sounding even more dovish than people assumed and will likely continue to be very dovish in the months ahead,” Mazen Issa, Canada macro strategist at Toronto-Dominion Bank’s TD Securities, said by phone from Toronto. “Everyone’s just turning their attention towards external events and we’re looking for any sort of domestic catalyst to provide some direction on the Canadian dollar and that’s likely to come from the employment tomorrow.”
Canada’s jobless rate is forecast to hold at 7 percent, the lowest level since December 2008, according to the median estimate in Bloomberg News survey of 24 economists.
“Positions are being pared back ahead of the event risk tomorrow, it’s going to be a very quiet, rangy day for the Canadian dollar,” said Blake Jespersen, managing director of foreign exchange at Bank of Montreal, by phone from Toronto. “In Canada, we think it could disappoint.”
The cost to insure against declines in the loonie rose after reaching the lowest level in 10 weeks April 1. The three- month so-called 25-delta risk reversal rate rose to 0.93 percent from 0.9 percent at the beginning of the week. Risk reversals measure the premium on options contracts to sell Canadian dollars versus buying U.S.
The Canadian dollar has gained 1.8 percent in the last month against nine other developed-nation currencies tracked by the Bloomberg Correlation Weighted Index. The loonie’s gain has only been outpaced by the currency of its fellow commodity- exporting nation, the Australian dollar, which added 2.1 percent.
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