Canadian Dollar Advances as Job Reports Boost Appetite for Risk

By Chris Fournier

Sept. 4 (Bloomberg) -- Canada’s dollar gained the most since July as investors’ appetite for riskier assets grew after government reports showed the nation unexpectedly added jobs in August and the U.S. shed fewer positions than forecast.

“People are putting risk back on,” said John Curran, a Toronto-based senior vice president at CanadianForex Ltd., an online foreign-exchange dealer. “The Canadian dollar should eventually strengthen toward the C$1.0630 bottom of the well- established range.” A “rather large” option expiry next week at C$1.10 may limit gains until then, he said.

The Canadian currency appreciated as much as 1.8 percent to C$1.0824 per U.S. dollar, the biggest intraday advance since July 15, before trading at C$1.0837 at 12:54 p.m. in Toronto, from C$1.1019 yesterday. It headed for a gain of 0.7 percent for the week. One Canadian dollar purchases 92.27 U.S. cents.

The currency, nicknamed the loonie for the bird on the C$1 coin, extended its advance after stock gains accelerated, with the Standard & Poor’s 500 Index rising 1 percent.

Employment in Canada increased by a net 27,100 jobs last month after a decline of 44,500 in July, the nation’s statistics agency reported today in Ottawa. The median forecast of 21 economists in a Bloomberg News survey was for a decrease of 15,000 jobs.

The employment gain was led by 30,600 part-time jobs, while full-time positions declined by 3,500, the report showed. The jobless rate increased to 8.7 percent from July’s 8.6 percent.

‘All Part-Time Growth’ 

“Headline numbers certainly gave the currency a bit of lift, but the jobs are all part-time growth and the unemployment rate has ticked up another point,” said Matthew Perrier, a director of foreign exchange at BMO Capital Markets in Toronto. “We may see the Canadian dollar give up some of its gains.”

Perrier also pointed to Canadian-dollar options expiring today and next week at C$1.10 as potentially limiting the currency’s appreciation.

U.S. employers eliminated 216,000 jobs in August after a revised decrease of 276,000 jobs in the previous month, the Labor Department reported today in Washington. The median forecast of 79 economists surveyed by Bloomberg was for a drop of 230,000. The unemployment rate increased to 9.7 percent from 9.4 percent in July.

Canadian government bonds fell, pushing the yield on the 10-year note up four basis points, or 0.04 percentage point, to 3.38 percent. The price of the 3.75 percent security maturing in June 2019 decreased 32 cents to C$103.07.

Loss in August 

The loonie appreciated 11 percent this year. It weakened 1.5 percent against the greenback last month, performing worse than 13 of the 16 most-traded currencies tracked by Bloomberg. The Canadian currency was the No. 1 performer in July, gaining 7.9 percent.

The Canadian dollar and its New Zealand counterpart were the best performers today against the U.S. dollar among the most-traded currency pairs.

The loonie will strengthen by the end of next year to C$1.07 against the U.S. dollar, according to the median forecast of 37 economists and analysts in a Bloomberg survey.

The yield on March bankers’ acceptances futures, a barometer of short-term interest rates, fell as much as seven basis points today, the most in a month, as traders increased bets the nation’s central bank will raise borrowing costs sooner rather than later. One basis point equals 0.01 percentage point.
“The unemployment number came in significantly above expectations,” said David Love, a trader of interest-rate derivatives at Le Group Jitney Inc., a Montreal brokerage. “That suggests the economy is recovering.”

The Bank of Canada meets on Sept. 10 to decide on interest rates. The central bank kept its benchmark rate at a record low 0.25 percent in July and reiterated plans to leave it there through June 2010.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
Last Updated: September 4, 2009 12:57 EDT