TORONTO, Sept 10: The Canadian dollar flirted with 13-year highs on Friday after robust August employment data bolstered the view that the Bank of Canada will raise interest rates at least one more time this year.
Short-end bonds were pressured by the jobs data, but a weak housing starts report and the influence of higher US debt prices pulled longer-date debt higher.
The currency finished at C$1.1774 to the US dollar, or 84.93 US cents, up from C$1.1819 to the US dollar, or 84.61 US cents, at Thursday’s close.
The currency has risen sharply for two straight days and is at its strongest level since last November, as strong economic data have rebuilt rate hike expectations that were questioned in the wake of Hurricane Katrina’s destructive roll through the U.S. Gulf Coast region.
On Friday, Statistics Canada said the Canadian economy added 27,500 jobs in August, more than the 19,000 expected by the market, while the unemployment rate was steady at 6.8 per cent.
That built on Thursday’s strong capacity utilization data, and sent the currency as high as 85.27 US cents versus a greenback that fell broadly during the session. The loonie is now just shy of its 13-year highs of C$1.1716 to the US dollar, or 85.35 US cents.
We’ve had a string of really good data. It looks like going forward the Bank of Canada is probably going to hike one more time this year, and that should be enough impetus to really get it there, said Ted Gould, trader at Investors Bank & Trust.
The loonie has moved in close alignment with soaring oil prices for most of the summer. But it has detached itself from the commodity over the past week, as attention has shifted back toward Canada’s interest rate outlook.
The central bank raised its overnight rate by 25 basis points to 2.75 per cent earlier in the week, but some have wondered if that might be the last move this year, as Hurricane Katrina has raised concerns of damage to the US economy that could spill over into Canada.
However, the jobs data — the first major report covering the month of August — suggest that another increase is likely, analysts said.
I’m not sure I would say it cemented the rate hike, but it’s certainly another strong piece of data going forward, said Gould.
However, he said the recent surge of the Canadian dollar could reignite worries of a slowdown in exports. The currency’s strong rise in 2003-2004 prompted the bank to step to the sidelines last fall.
Separately, Chinese President Hu Jintao said at a news conference with Canadian Prime Minister Paul Martin that China would back efforts by its companies to make investments in Canada, a country whose rich resources make it increasingly attractive to Chinese firms.
Short-dated Canadian bonds were pressured by the strong jobs performance, but longer-dated issues were helped by other weak data and the influence of stronger US Treasuries.
The two-year bond fell 1 Canadian cent to C$99.94 to yield 3.034 per cent, while the 10-year bond rose 29 Canadian cents to C$105.48 to yield 3.818 per cent.
The 30-year bond gained 69 Canadian cents to C$115.13 to yield 4.138 per cent. In the United States, the 30-year treasury yielded 4.404 per cent.
The three-month when-issued T-bill yielded 2.77 per cent, up from 2.76 per cent at the previous close. —Reuters
