Canadian Dollar Reaches Highest Level Since May 2008 on Economic Growth

February 6, 2011

By Catarina Saraiva -Bloomberg News

Canada’s dollar reached the strongest level since May 2008 as the nation’s economy and employment grew more than forecast, boosting confidence in the recovery.

The Canadian currency rose the most in two months against the U.S. dollar this week after two straight weekly declines. The loonie, as the currency is known for the image of the waterfowl on the C$1 coin, gained against most of its major counterparts as oil, the nation’s largest export, reached a two- year high.

“The strength in the employment number attracted some new interest to step into the market to sell the U.S. dollar and buy the Canadian dollar,” said George Davis, chief technical analyst for fixed income and currency strategy in Toronto at RoyalBank of Canada. “We’re seeing a general buy-North-America theme and the Canadian dollar has benefited from that.”

The Canadian dollar appreciated 1.4 percent to 98.73 cents per U.S. dollar in Toronto, from C$1.0013 cents Jan. 28. The currency yesterday touched 98.32 cents, the strongest level since May 29, 2008. One Canadian dollar buys $1.0129.

The loonie, as Canada’s currency is known for the image of the waterfowl on the C$1 coin, has traded above parity with its U.S. counterpart every day this year, the longest period since December 2007.

GDP Grows

Canada’s gross domestic product grew at a 3 percent annual rate in November on increased oil production, wholesaling and retailing, down from a 3.4 percent pace in October.

Employment rose by 69,200 and the labor force increased by 106,400, Statistics Canada said yesterday in Ottawa. The jobless rate rose to 7.8 percent from December’s 7.6 percent. Economists forecast 7.6 percent unemployment and job growth of 15,000, according to the median estimates of 25 and 26 economists surveyed by Bloomberg News, respectively.

“We had a very solid employment report,” said Steve Butler, director of foreign-exchange trading in Toronto at Bank of Nova Scotia’s Scotia Capital unit. “The Bank of Canada is going to have to start thinking about when it’s going to start hiking rates again.”

The Bank of Canada has left its benchmark interest rate at 1 percent since boosting it for a third consecutive meeting in September. The bank said Jan. 18 that future increases would be “carefully” considered.

Market Rates

Credit market prices show investors may be anticipating higher Canadian policy rates. The yield on the September 2011 bankers’ acceptances contract jumped to 1.74 percent, the highest since Jan. 21. The yield reached 1.94 percent Jan. 18, the last meeting of Bank of Canada policy makers.

So-called Bax contracts average about 22 basis points above the central bank’s overnight target, Bloomberg data since 1992 show. Hedge funds and money managers use the contracts to hedge against interest-rate changes and make bets.

Canada’s employment report restored the nation’s status as having regained all the jobs it lost in the recession, after a Jan. 28 revision based on updated census data reduced Statistics Canada’s estimate of total employment.

U.S. nonfarm payrolls increased by 36,000 in January after a revised increase of 121,000 in the previous month, the Labor Department reported yesterday in Washington. The median forecast of 85 economists in a Bloomberg News survey was for a gain of 146,000. Unemployment for Canada’s largest trading partner declined to 9 percent last month from 9.4 percent in December.

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