The loonie, as the Canadian dollar is best known, retreated from the strongest level in more than two weeks against the US dollar, after data showed US employers added higher-than-expected number of workers last month, easing concerns over the US economic outlook. At the same time, data showed that Canadian employers eliminated jobs last month, reinforcing speculation Bank of Canada may have to cut borrowing costs to spur economic growth.
USD/CAD hit a session high at 1.1097 at 13:59 GMT, after which the pair traded at 1.1076 by 14:33 GMT, adding 0.86% for the day. Support was likely to be received at March 6th low, 1.0956, also the pairs weakest since February 19, while resistance was to be encountered at March 5th high, 1.1099.
The US Bureau of Labor Statistics reported today that nations employers added 175 000 workers to payrolls in February, after a revised up 129 000 increase in the previous month. Analysts had expected a 149 000 advance in February. At the same time, the unemployment rate unexpectedly rose to 6.7% last month from a 5-year low of 6.6% as more Americans entered the workforce, but couldnt find a job. The US added 194 000 jobs on average, each month last year.
The report suggested that US employers were upbeat about the economic outlook, after recent winter storms and much-below-normal temperatures across the US and especially across the eastern parts of the country, slowed consumer spending, housing and manufacturing.
“The fundamentals are good,” Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, commented in a Bloomberg interview before the report. “Faster job growth means faster income and more discretionary spending. Ultimately, with more business spending, not only will they hire more people, they’ll hire more capital. Everything becomes self-reinforcing.”
Meanwhile, demand for the loonie was pressured after data showed Canadian employment unexpectedly declined for the second time in three months in February, led by a drop in government workers.
Statistics Canada reported today that nations employment fell by 7 000 last month, defying analysts projections of an increase by 15 000 and after a 29 400 increase in January. At the same time, the unemployment rate was unchanged at 7% in February, in line with analysts estimates and matching Januarys reading. However, more Canadians left the workforce, as the corresponding participation rate declined to 66.2% last month, the weakest level since December 2001.
The Canadian public sector employed 50 700 less workers in February, while private companies hired 35 200 more people, data from the report showed. The government fired workers as the Canadian Ministry of Finance is struggling to eliminate a budget deficit.
The weakness of the labor market may threaten consumer spending, which was the main source of growth for the 11th largest economy, since the start of the Global Financial Crisis.
“It wouldn’t surprise me to see another half-percent lower in CAD,” Greg Anderson, head of global foreign-exchange strategy at Bank of Montreal, said in a Bloomberg phone interview from New York. “It doesn’t juxtapose well against the U.S. number, and it probably keeps the Bank of Canada with full justification to be very soft with rhetoric now for another three months.”
On Wednesday, Bank of Canada kept its main interest rate unchanged at 1%, where it has remained since September 2010, citing weak exports and investment. The central bank also said the economy may slow its pace in the first quarter.
The loonie weakened to more than four-year low of 1.1224 against the US dollar on January 31st, after the central bank said earlier in January the Canadian currency was still too strong and was hurting exporters. This came after December’s statement, which warned inflation rate may stay below Bank of Canada’s 2% target for a prolonged period of time, fueling speculation the central bank may cut interest rates.
Elsewhere, GBP/USD hit a session high at 1.6772 at 09:30 GMT, after which the pair trimmed daily gains to trade little changed at 1.6746 at 10:44 GMT, adding 0.04% on a daily basis. Support was likely to be received at March 6th low, 1.6686, while resistance was to be met at March 6th high, 1.6778.
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