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The Canadian dollar slumped in the longest streak since May as the country’s job market deteriorate while U.S. employment development exceeded predictions, producing more to evidence the two countries’ economies are diverging.
The loonie, as the currency is nicknamed, touched its worst point in almost two years as U.S. June payroll data triggered speculation the Federal Reserve will start winding down financial stimulus this year. Canada’s employment slightly moved, with 400 jobs lost in June after producing 95,000 the month before, the most in more than a decade. Building permits declined in May, before a July 8 report from Statistics Canada.
Winners, Losers
Canada’s dollar back down the most this week versus its U.S. counterpart among major currencies. It bolsters the most, 2.6 percent, against South Africa’s rand. Markets in Toronto were closed July 1 for the Canada Day holiday.
Jobs Data
Canada’s job gains have slowed this year, with the average monthly increase of 14,000 less than the 27,000 recorded in the second half of last year, Statistics Canada said July 5.
Fed View
The U.S. jobless rate stayed at 7.6 percent, while hourly earnings in the year ended in June advanced by the most since July 2011. Fed Chairman Ben S. Bernanke said on June 19 reductions in the U.S. central bank’s bond-buying program, which tends to devalue the currency, will depend on improvements in the job market. The Fed’s next policy meeting announcement is July 31.
Growth Differences
Canada’s economic progress this year will be 1.7 percent, trailing the U.S.’s 1.9 percent, according to the median estimates of economist surveys by Bloomberg. U.S. out performance is forecast to continue until 2015, Bloomberg surveys show.
“We think Canadian economic growth should be somewhat slow and the U.S. economy should be somewhat stronger,” said David Doyle, a strategist at Macquarie Capital Markets, by phone from Toronto. “When those sorts of dynamics occur they tend to occur alongside periods where the loonie weakens.”
The cost to insure versus drops in the loonie against its U.S. counterpart increased from its worst point in two weeks. The three-month so-called 25-delta risk reversal rate rose to 1.6200 yesterday, after touching 1.5825 the day before, its bottom since June 20. Risk reversals measure the premium on options contracts to sell Canadian dollars against purchasing U.S. contracts that do the opposite.
The Canadian dollar has gave up 0.4 percent in the past six months versus nine developed nations currencies tracked by the Bloomberg Correlation Weighted Index. The Australian dollar has displayed a 8.4 percent drop, while the U.S. dollar has climbed 7.6 percent.
