VN: Canadian dollar gains, bolsters interest rate expectations
Canada’s dollar rose to the highest level this month after a government report showed job creation was almost five times more than economists forecast in June, bolstering expectations for higher interest rates.
“It’s a great number, coming in way above expectations, almost totally offsetting the losses we saw in the recession,” Camilla Sutton, director of currency strategy at Bank of Nova Scotia’s Scotia Capital unit, said by phone from Toronto. “It solidifies the expectation for a Bank of Canada hike on July 20. It’s very good for the Canadian dollar.”
The Canadian currency, nicknamed the loonie, gained 0.7 percent to C$1.0344 per U.S. dollar at 7:26 a.m. in Toronto, from C$1.0420 yesterday. It touched C$1.0336, the highest since June 28. One Canadian dollar purchases 96.67 U.S. cents.
The probability of an interest rate increase at the next Bank of Canada meeting moved from 67 percent before the jobs release to 80 percent afterwards, Sutton said.
Employment rose by 93,200 in June, following gains of 24,700 in May and April’s record 108,700, Statistics Canada said today in Ottawa. The jobless rate fell to 7.9 percent, the lowest since January 2009, from 8.1 percent. Economists surveyed by Bloomberg predicted 20,000 new jobs and an unemployment rate of 8.1 percent, according to the median of 23 estimates.
The job market has been one of the strongest parts of a Canadian recovery the International Monetary Fund says will lead advanced economies this year. The Bank of Canada raised its key lending rate from a record low 0.25 percent June 1 after the economy grew at a 6.1 percent annualized pace in the first quarter. The bank said future moves depend on the balance of domestic growth and an uneven global recovery.
“A strong number tends to make the Canadian dollar stronger temporarily,” Michael Gregory, senior economist in Toronto at Bank of Montreal’s BMO Capital Markets unit, said before the report was released. “This adds to the evidence that the Bank of Canada will raise rates, which should be positive for the Canadian dollar.”
