Canada’s Dollar Tumbles as Employers Unexpectedly Cut Payrolls

By Chris Fournier

Nov. 6 (Bloomberg) -- Canada’s dollar fell after employers unexpectedly cut jobs in October and a report in Washington showed the U.S. unemployment rate rose to a 26-year high, casting doubt on the economic recovery’s strength.

The Canadian currency dropped for a second day and was the second-worst performer against its U.S. counterpart among the 16 most-traded currencies. Only Mexico’s peso lost more. The greenback fell against eight of the 16. Crude oil slumped the most in a week and traders trimmed bets on interest-rate increases in Canada.

“It’s pretty ugly,” said Blake Jespersen, director of foreign exchange in Toronto at Bank of Montreal, Canada’s fourth-largest bank. “Oil continues to fall. The Canadian number was bad, and the U.S. number wasn’t much better. People are going home and don’t want to be long the Canadian dollar. It’s the ‘risk off’ trade again.” A long position is a bet a currency will gain.

The Canadian currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, depreciated 0.9 percent to C$1.0740 per U.S. dollar at 4:24 p.m. in Toronto. It depreciated as much as 1.2 percent, the biggest intraday drop in a week. It closed at C$1.0651 yesterday. One Canadian dollar purchases 93.11 U.S. cents.

“There’s certainly some scope for slippage” in the Canadian dollar, said Shaun Osborne, Toronto-based chief currency strategist at Toronto-Dominion Bank, Canada’s second- biggest lender. The jobs data “probably will support those concerned that the strong Canadian dollar is constraining the rebound. It plays into the Bank of Canada’s hands.”

Jobless Rate Rises

The nation’s unemployment rate rose to 8.6 percent from 8.4 percent in September while employers eliminated a net 43,200 jobs, Statistics Canada said today in Ottawa. The median estimate in a Bloomberg survey was for payrolls to gain 10,000 positions. The jobless rate in the U.S., Canada’s biggest trade partner, rose to 10.2 percent as American employers cut 190,000 jobs, more than the 175,000 forecast in another survey, a Labor Department report showed.

The jobs data may make it easier for the Bank of Canada to fulfill its pledge to keep its benchmark lending rate at a record low until June 2010 to spur growth, barring change in the inflation outlook. Finance Minister Jim Flaherty said yesterday he still expects weakness in employment data, saying the labor market will recover when economic growth pushes companies to invest again.

‘Cautiously Buying’

“The market is cautiously buying U.S. dollars” on the jobs report, said John Curran, a Toronto-based senior vice president at CanadianForex Ltd., an online foreign-exchange dealer. “I think we head higher in the U.S. dollar against the Canadian dollar.”

Canadian payrolls last month lost 59,700 part-time jobs and gained 16,500 full-time positions, the statistics agency said.

“The number was not quite as bad as the headlines might suggest,” said David Love, a Montreal-based trader of interest- rate derivatives at brokerage Le Group Jitney Inc. “All of the losses were part time.”

Traders scaled back bets on interest-rate increases after the payroll reports. The yield on the overnight index swap due in one year, based on predictions for the Bank of Canada’s rate at that time, dropped to 0.48 percent, from 0.50 percent yesterday and 0.59 percent on Oct. 19, the day before the central bank reiterated its conditional pledge to hold rates unchanged.

Canadian government bonds were little changed, with the 10- year note yielding 3.53 percent. The price of the 3.75 percent security due in June 2019 was C$101.83. The two-year note yield decreased one basis point, or 0.01 percentage point, to 1.41 percent. Canada’s government securities lost investors 1.6 percent this year, according to a Merrill Lynch index.

Weekly Gain

Canada’s dollar still posted its first weekly gain since Oct. 16, rising 1 percent as stocks advanced over the past five days. The Federal Reserve said on Nov. 4 that interest rates will stay “exceptionally low” for an “extended period,” increasing the appeal of riskier assets such as currencies linked to growth.

The loonie touched C$1.0207 on Oct. 15, the strongest level in 15 months, then retreated 4 percent as officials including Bank of Canada Governor Mark Carney and Finance Minister Flaherty intensified comments that its strength threatens the nation’s economic recovery.

“Terrible data,” said Steve Butler, director of foreign- exchange trading in Toronto at Scotia Capital Inc., a unit of Canada’s third-largest bank. “Oil is getting sold off. The Canadian dollar looks stuck now between C$1.06 and C$1.09.”

Crude oil for December delivery tumbled as much as 3.7 percent to $76.71 a barrel today, the biggest drop since Oct. 30. Crude is Canada’s biggest export, and the nation is the largest supplier of energy products to the U.S.

The Standard & Poor’s Index rose 0.3 percent and falling as much as 0.7 percent.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

Last Updated: November 6, 2009 16:29 EST