Canada's Dollar Gains on Jobs, Trade Reports and Price of Oil
By Haris Anwar
May 10 (Bloomberg) -- Canada's dollar strengthened on better-than-forecast reports regarding jobs and trade as well
as a record high price of oil, boosting speculation the central bank may stop cutting borrowing costs.
The Canadian dollar rose against 14 of the 16 most-actively traded currencies this week, including a 1.4 percent gain
versus its U.S. counterpart. Data yesterday showed the pace of hiring increased last month and the nation's trade
surplus widened to the largest in 10 months during March. Commodities account for about half of Canada's exports.
``This week's data have reduced the odds for more aggressive rate cuts in Canada,'' said Benjamin Reitzes, an
economist at BMO Capital Markets in Toronto, a unit of Canada's fourth-largest bank. ``Soaring commodity prices and a
robust domestic economy are offsetting a drag from weak U.S. demand. That should keep the Canadian dollar around
parity this year.''
Canada's dollar advanced to C$1.0052 per U.S. dollar in Toronto, from C$1.0195 on May 2. It was the first time the
currency gained in three weeks. One Canadian dollar buys 99.48 U.S. cents.
The nation's central bank cut borrowing costs by a half- percentage point to 3 percent on April 22 as the economy in the
U.S. slowed. Canada ships about 80 percent of its exports there.
Canada's economy added 19,200 jobs last month after gaining 14,600 positions in March, Statistics Canada said in
Ottawa yesterday. Economists had forecast 10,000 new jobs for April, according to the median estimate of 24 analysts
surveyed by Bloomberg News.
`A Healthy Number'
``It's a healthy number, and could rein in some of the expectations for more aggressive rate cuts this year,'' said Chris
Turner, head of currency research at ING Financial Markets in London, a unit of the largest Dutch financial-services
company. ``The currency could break to the top side of the range, reaching 98 cents next week.''
The unemployment rate increased to 6.1 percent in April, from 6 percent during March.
Canada's dollar yesterday extended its gain after a separate report showed the nation's trade surplus widened to the
largest in 10 months during March, as energy exports jumped and imports of automotive products fell.
The surplus grew to C$5.53 billion ($5.5 billion) from a revised C$4.79 billion in February, Statistics Canada said.
Exports rose for a third month, gaining 1.6 percent. Imports fell 0.3 percent. Economists surveyed by Bloomberg
forecast a C$4.5 billion surplus, the median of 23 estimates.
Currency Forecast
The Canadian dollar will decline to C$1.08 by the first quarter of 2009, according to the median forecast of 37 analysts
surveyed by Bloomberg.
Canada, the world's eighth-biggest economy, is benefiting from record prices for commodities such as oil and metals,
helping the country ride out a slump in manufacturing amid weak demand from the slowing U.S. economy. Energy
exports advanced 6.6 percent in March.
Crude oil rose above $126 a barrel yesterday.
``The Canadian dollar looks quite solidly anchored around parity,'' said Alan Ruskin, head of international currency
strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``The trade number looks helpful for the
currency. Canada's trade sector is holding up quite well despite the deterioration in the U.S. economy.'' Royal Bank of
Scotland Group Plc is the world's fifth-largest currency trader.
`Link With Oil'
The loonie, as the currency is known because of the image of the bird on the one-dollar coin, has traded near parity
with its U.S. counterpart this year after climbing 17 percent in 2007. It touched a low of C$1.0379 on Jan. 22, and a high
of 97.12 cents per U.S. dollar on Feb. 28.
``The Canadian dollar has re-established its link with oil prices,'' said Matthew Strauss, a senior currency strategist at
RBC Capital Markets in Toronto, a unit of Canada's largest bank. ``The currency was following moves in global equities.
Now oil and interest rates are playing an important role.''
RBC predicts the currency will decline to C$1.10 by the end of this year as the U.S. economic slowdown spills over into
Canada, forcing the Bank of Canada to cut borrowing costs once more to 2.75 percent.
`Question the Longevity'
``The unabated rally in crude oil prices is a warning to the Canadian dollar bears,'' Strauss wrote in a note to clients
yesterday. ``However, we question the longevity of these re- emerging relationships that are dependent on a
sustainable recovery in the U.S. economy and a limited slowdown in the rest of the world in the second half.''
The yield on the benchmark 10-year bond fell 2 basis points, or 0.02 percentage point, to 3.59 percent this week. The
price of the 4 percent security maturing in June 2017 increased 18 cents to C$103.21.
Canada's two-year yield will rise to 2.88 percent by the end of this year, with the 10-year yield reaching 3.77 percent,
according to the median forecast in a separate Bloomberg survey.
The yield advantage of the 10-year U.S. Treasury note compared with comparable-maturity Canadian government
bonds was 18 basis points, down from 25 basis points on May 2 when the gap reached the widest since Aug. 17. The
Canadian 10-year bond yielded 36 basis points more than its U.S. counterpart on Jan. 22.
Canadian government bonds have returned 3.3 percent in 2008, according to Merrill Lynch & Co. index statistics. U.S.
Treasuries during the same period returned 2.6 percent.