Canadian dollar surges

The Canadian dollar topped 80 US cents on Friday for the first time in 11-1/2 years, as strong Canadian jobs data contrasted with a weak US jobs report, boosting confidence in the domestic economy and raising expectations for higher interest rates.
Domestic bond prices took flight, ignoring the Canadian jobs figures, and instead following US Treasuries that rose on the weak US data. The currency drove as high as C$1.2495to the US dollar or 80.03 US cents, its highest point since March 2003.
By the close, the currency had retreated to C$1.2521 to the US dollar, or 79.87 US cents, up sharply from C$1.2613, or 79.28 US cents, at Thursday's close. Canada's economy created 43,200 jobs in September, nearly three times the 15,000 expected by analysts, while the unemployment rate fell to 7.1 percent, instead of staying at 7.2 percent as the market had forecast.
US employment rose by 96,000 in September, well below Wall Street economists' forecasts for 148,000 new jobs. "Great news in Canada, a shaky number out of the US," said Steven Butler, director of foreign exchange at Scotia Capital.
"Canada's been going one way for almost the last three trading weeks, so it's certainly nothing new, and the momentum just continues and the good news keeps feeding the move." Butler said the currency will likely push decisively past the C$1.25 level and target C$1.24, or 80.65 Canadian cents.
The currency has risen 3.6 percent over the past three weeks, driven by strong commodity prices, optimism about the Canadian economy, and expectations that the Bank of Canada will raise rates at its next two meetings, and possibly again in January.
The jobs data bolstered the rate hike expectations, while the weak US data suggested that the Canada's rate premium over the comparable US rate a factor that has helped the currency rise over the past 2 years would remain intact, or even expand.
"The market appears to be fully pricing in two moves for the Bank of Canada by the end of the year and just one move by the Fed, and I think it's justified based on the economic data," said Sal Guitar, senior economist at Bank of Montreal.