TORONTO: The Canadian dollar rose sharply against the US dollar on Friday, reaching its strongest level in eight weeks, after a surprisingly strong employment report boosted confidence in Canada’s economic outlook.
The loonie gained 0.6% to C$1.3935 per US dollar, or 71.76 US cents, its highest intraday level since June 11. The currency was also heading for a weekly gain of approximately 0.6%.
Canada’s labour market delivered a major upside surprise in July, with employment increasing by 75,100 jobs, well above economists’ forecast of 16,500. At the same time, the unemployment rate dropped to 6.4%, reaching its lowest level in two years.
Economists said the figures indicate that the economic momentum recorded during the second quarter may have continued into the early part of the third quarter. Preliminary figures had previously suggested that Canada’s economy grew by around 3.4% in the second quarter.
The Canadian dollar also received support from weakness in the US currency after disappointing American employment data. The US economy unexpectedly lost jobs in July, while payroll figures for the previous two months were revised significantly downward.
The weaker US jobs picture has increased uncertainty over the Federal Reserve’s future interest-rate decisions and raised speculation about whether policymakers could reconsider their approach at the next meeting.
Meanwhile, oil prices edged higher, providing additional support for the Canadian currency. Oil rose 0.5% to $77.64 a barrel as investors monitored developments involving Gulf countries and Iran, including reports of progress toward reopening the strategically important Strait of Hormuz.
Canadian bond yields also moved higher, with the two-year yield increasing 2.3 basis points to 2.951%. The yield gap between Canadian and comparable US government bonds narrowed by 8.3 basis points to around 123 basis points in favour of US securities.
The combination of strong Canadian employment figures, a weaker US dollar and higher oil prices helped push the loonie higher, with investors now closely watching upcoming economic data for further clues about the outlook for both economies.
