TORONTO: The Canadian dollar weakened to a two-week low against the US dollar on Friday after US data showed employers added fewer jobs than expected in July, lessening expectations the US Federal Reserve is about to scale back stimulus measures.
The slower-than-expected US jobs growth pushed Treasury yields and the dollar lower while capping stock indexes as investors grew cautious on the outlook for US economic growth and Fed plans to wind down easy monetary conditions.
US payrolls rose by 162,000 in July, the Labor Department said on Friday, below the median forecast of 184,000 in a Reuters poll. The jobless rate fell to 7.4 percent.
The figures sideswiped the greenback, which weakened against most currencies. But the Canadian dollar felt no benefit, as weakness in Canada's top trading partner suggested Canada's central bank will be less likely to raise rates in 2014 if the Fed is unable to start winding down its stimulus program.
"Bank of Canada Governor Stephen Poloz is optimistic about the US recovery but with the jobs numbers today, that optimism may be slightly misplaced, and that's weighing on the Canadian dollar," said Adam Button, currency analyst at ForexLive in Montreal.
"Monetary policy in Canada and the United States is very much tied together. The Bank of Canada governor is talking about rate hikes next year, but unless the Fed starts to taper, that is unrealistic," he added.
The Canadian dollar ended the North American session at C$1.0390 versus the US dollar, or 96.25 US cents, down from Thursday's North American session close of C$1.0348 versus the US dollar, or 96.64 US cents. That was the weakest level for the Canadian currency since July 18.
It had strengthened to a session high of C$1.0339 after the US data sent the greenback reeling, but then settled weaker as investors digested the jobs report.
Button said the employment report, together with moves this week by the Fed, European Central Bank and Bank of England to reaffirm easy monetary policy did not give dollar bulls the signs they were hoping for. Canada's currency, so tied to strength in its US trading partner and to emerging market demand for commodies, could have a sluggish end to the summer as well.
"Headline risks all point towards higher dollar-CAD, and will probably push it back up to the top of recent range towards C$1.06," Button said.
Government bond prices were stronger across the maturity curve. The two-year bond was up 6.5 Canadian cents to yield 1.157 percent, while the benchmark 10-year bond rose 52 Canadian cents to yield 2.487 percent.
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