Canadian Dollar Touches Strongest in More Than a Week After Payrolls Gain

Financeroll - Canada’s dollar touched the strongest level in more than a week after government data showed U.S. and Canadian payrolls climbed more than forecast in September, fueling appetite for higher-yielding assets.

The Canadian currency, nicknamed the loonie, erased its advance as crude oil, the nation’s biggest export, and stocks reversed gains as Fitch Ratings downgraded the government debt of Spain and Italy. The loonie gained earlier as data showed the nation’s jobless rate fell to the lowest since December 2008. U.S. job gains were also revised up for the previous two months.

“The data out of Canada is better than expected, and the macro community will like that,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “Fair value for Canada is stronger than current levels.”

The Canadian currency was little changed at C$1.0383 per U.S. dollar at 12:49 p.m. in Toronto, compared with C$1.0371 yesterday. It gained 1.3 percent earlier to C$1.0235, the strongest level since Sept. 28. One Canadian dollar buys 96.31 U.S. cents. The loonie depreciated to C$1.0658 on Oct. 4, the weakest level since August 2010.

Crude oil for November delivery traded at $82.05 a barrel in New York, down 0.7 percent, after rising 1.7 percent earlier to $84, the highest level since Sept. 28. The Standard & Poor’s 500 Index fell 0.8 percent after rising 0.6 percent earlier.

Italy had its foreign and local currency long-term issuer default ratings cut to ‘A+’ from ’AA-,’ while Spain had the same set of ratings cut to ‘AA-’ from ‘AA+.’ Fitch’s outlook for both is negative.

Job Gains

Canadian employment rose by 60,900 in September after a decline of 5,500 in August, Statistics Canada said today in Ottawa. The unemployment rate fell to 7.1 percent. Economists in Bloomberg News surveys projected a gain of 15,000 jobs and unemployment to remain at August’s reading of 7.3 percent.

U.S. payrolls climbed by 103,000 workers, Labor Department data showed today in Washington. The median forecast in a Bloomberg survey called for an increase of 60,000. Revisions to previous reports added a total of 99,000 jobs to payrolls in July and August. The August total was revised to a gain of 57,000 from no change.

“This report drives a wedge between what’s happening in Europe and what’s happening in the U.S.,” said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York. “When push comes to shove, you’re seeing job creation in the U.S. rather than businesses sitting and watching the crisis unfold in Europe.”

Bonds Fall

Canada’s government bonds dropped, pushing the yield on the two-year benchmark note up four basis points, or 0.04 percentage point, to 0.98 percent. It touched 1.03 percent, the highest level since Sept. 19. The 1.5 percent securities maturing in November 2013 declined 9 cents to C$101.06.

Growth in the world’s 10th largest economy is expected by analysts to decelerate this year and in 2012, and Bank of Canada Governor Mark Carney has said there’s less need to lift borrowing costs. The central bank kept its main interest rate unchanged for an eighth meeting last month amid Europe’s financial crisis and a slow U.S. rebound.

Economic growth is forecast to slow to 2.2 percent this year and 2.1 percent in 2012, according to a Bloomberg survey of economists and analysts this month. That’s 0.2 percentage points below the August forecast for both years. The Bank of Canada estimates economic growth will slow to 2.6 percent next year from 2.8 percent this year.

The nation’s gross domestic product rose 0.3 percent in July to C$1.26 trillion ($1.21 trillion) on a seasonally adjusted basis, Statistics Canada said Sept. 30, matching the median estimate in a Bloomberg survey with 23 responses.

Fundamental Story’

“We’ve now had a reasonable GDP print and a reasonably good Canadian employment number, so that is good news for people looking at the fundamental story for Canada,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto.

Canada’s currency reached a three-year high of 94.07 cents on July 29 before plunging along with other risk-related assets as investors, concerned that a potential Greek default may spark a run on European banks and send the global economy into another recession, took refuge in the U.S. dollar and the yen.[Blb]