Canadian dollar rallies on jobs relief

The Canadian dollar finished stronger against the US currency on Friday, buoyed by a firm domestic jobs report that helped it side-step a disappointing read on the labour market in the United States. The currency strengthened early in the session on the back of better-than-expected Canadian jobs numbers and touched its highest level in five sessions at C$0.9899 to the US dollar, or $1.0102.
But trading was volatile after a report showing US employers hired fewer workers than expected in December and a surprisingly large number of people gave up searching for work. "We should be seeing a lot stronger (US) job numbers at this point in the recovery and I think that because we're not, it just solidifies that the (US Federal Reserve) is not only on hold, but will maintain very loose and alternative policy for some time to come," said Camilla Sutton, chief currency strategist at Scotia Capital.
"That's negative for the US dollar," she said. By contrast, Canada added 22,000 jobs in December compared with 15,200 in November, and more than the 17,500 forecast. The unemployment rate held steady at 7.6 percent for a second month. The jobs figures will not likely persuade the Bank of Canada to hike interest rates at its policy-setting decision later this month, but suggests the central bank may raise rates sooner than some had expected.
An earlier rate hike in Canada would widen the interest rate differential with the United States. Higher interest rates often attract capital flows into a country, helping its currency rise. The Canadian dollar finished 0.5 percent higher on Friday at C$0.9918 to the US dollar, or $1.0083, on Friday, from the previous session's close at C$0.9969 to the US dollar, or $1.0031.
The currency extended its streak of trading above parity for a ninth straight session, and notched a weekly gain of 0.3 percent. Sutton said the Canadian dollar's strength on Friday was particularly impressive given the euro's slump to almost four-month lows, while a steady oil price and relief from the domestic jobs figures played a supporting role.
"It's a supportive report for the Canadian dollar. Again, it's not a barn-burner report like we saw in the first half of the year but it's solid and that's a positive surprise because most Canadian employment reports recently have been on the soft side," said Doug Porter, deputy chief economist at BMO Capital Markets.
Most of Canada's primary securities dealers now expect the central bank to resume raising interest rates in the first half of this year with economic prospects having brightened in the past month, a Reuters poll showed. In a December poll, the majority forecast rate increases in the second half of this year with the median prediction of a first hike in July.
The central bank halted its rate-hiking campaign after three successive increases last year in part to gauge the patchy US recovery. Canadian government bond prices were able to grind higher after being stamped down earlier by the forecast-beating domestic jobs figures.
But prices soon turned steadily higher, as equity markets fell after the disappointing US data. Canada's government bonds underperformed their US counterparts across the curve. The interest-rate sensitive two-year bond rose 5 Canadian cents to yield 1.716 percent, while the 10-year bond advanced 30 Canadian cents to yield 3.187 percent.