TORONTO (Reuters) - The Canadian dollar touched its strongest level in nearly a year on Friday as a “perfect storm” of risk appetite and stronger-than-expected domestic employment data pushed the currency through the C$0.98 level.
The Canadian economy added 34,300 jobs last month, topping all expectations of analysts surveyed by Reuters. Canada has recouped all the jobs lost in the recession, and employment stands 176,600 higher than in August 2011, with most of the increases in full-time positions.
“It’s likely to support the already hawkish stance of the Bank of Canada. We’ve had a slew of some disappointing domestic data recently, so this is a positive development for the Canadian dollar,” said Camilla Sutton, chief currency strategist at Scotiabank.
By contrast, in the United States jobs growth slowed sharply in August, with nonfarm payrolls increasing less than expected. The weak report strengthens the case for the Federal Reserve to pump more money into the sputtering economy.
Fed Chairman Ben Bernanke has made plain that the central bank is seriously considering additional monetary policy easing at its meeting next week to help counter the “grave” stagnation of the U.S. labor market.
“The combination of relatively decent domestic data and also a general improvement in risk appetite, as the market seems to have fully priced in doing another round of quantitative easing in next week’s (Fed) meeting, which is good for all of the risk proxies, including Canada,” said Adam Cole, global head of FX strategy at Royal Bank of Canada in London.
“It’s kind of a perfect storm for Canada of good domestic news and the right international environment.”
At 10:21 a.m. (1354 GMT), Canada’s dollar was trading at C$0.9783 against the U.S. dollar, or $1.0222, from Wednesday’s North American session close at C$0.9828, or $1.0175. Earlier, it touched C$0.9778, or C$1.0227, the currency’s strongest level since September 19, 2011.
The Canadian dollar had already been buoyed by Thursday’s announcement by the European Central Bank that it will launch a new and potentially unlimited bond-buying program to lower borrowing costs for struggling euro zone countries.
Cole said the currency may lose some momentum as it approaches the C$0.9700 level, adding there’s not much support after that until the currency reaches the mid-C$0.90’s level.
The currency is unlikely to see parity in the near-term, he said. “I think you’d have to see a wholesale sell-off in risk to get that.”
Canadian government bonds were higher across the curve, with the two-year bond up 2 Canadian cents to yield 1.153 percent and the benchmark 10-year bond climbing 36 Canadian cents, yielding 1.800 percent.
Editing by Leslie Adler