C$ soars on upbeat jobs data, rate speculation

Fri Oct 9, 2009 5:03pm EDT
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By Frank Pingue and Jennifer Kwan

TORONTO (Reuters) - The Canadian dollar raced to a one-year high on Friday as domestic jobs data zoomed past forecasts and sparked chatter about whether the Bank of Canada will be forced to raise rates sooner than expected.

The currency shot to C$1.0411 to the U.S. dollar, or 96.05 U.S. cents, its highest level since September 2008, after data showed the economy created 30,600 jobs in September, six times more than expected.

Also helping to power the currency's latest rally was talk about whether the central bank may now opt to move early on interest rates and give up its conditional pledge to keep rates at their historic low of 0.25 percent at least until mid-2010.

"It's all on the back of the strong employment report which showed that Canada is creating jobs," said Sal Guatieri, senior economist at BMO Capital Markets.

"It likely suggests the Bank of Canada will move on rates ahead of the Federal Reserve, albeit not for another year."

The Canadian currency finished at C$1.0444 to the U.S. dollar, or 95.75 U.S. cents, up from C$1.0522 to the U.S. dollar, or 95.04 U.S. cents, at Thursday's close. The Canadian unit is up 3.6 percent for the week.

Talk of rate hikes ramped up this week after the Reserve Bank of Australia raised its interest rate and became the first central bank in the Group of 20 nations to tighten monetary policy as the financial crisis abates.

However, analysts said the currency's rally, which makes life tougher for Canadian exporters, has had the same braking effect on the economy as higher rates. As a consequence, the Bank of Canada still has latitude to hold rates steady, giving it flexibility, especially if the United States, Canada's main trading partner, fails to sustain its own recovery.   Continued...