Canadian Loonie Soars Higher After Strong September Employment Report

The Canadian dollar was in the spotlight Friday, Oct. 8 following a surprisingly strong Canadian employment report. The loonie rallied more than eight cents immediately following the report.

According to Stats Canada, over 30,000 new jobs were added in September, which is much higher than forecast of only 5,000 jobs. At the same time the unemployment rate dropped to 8.4 per cent, down from 8.7 per cent in August. Adding to the good news is the fact that most of the new jobs went to young people, who have been the hardest hit in the global recession.

The report caused the USDCAD to drop to its lowest point this year to 1.0415 USD (0.9577 CAD) and has some analysts and economists focusing on parity by the end of this year.

"We expect to see ongoing USDCAD weakness (CAD strength) on the back of both fundamental and technical drivers," said Camilla Sutton, currency strategist at Scotia Capital. "As we move towards parity, the more it will pull as a magnet."

Shaun Osborne, chief currency strategist from TD Securities said they continue to maintain their long term forecast for parity by early 2010. The USDCAD hit a high of 1.2995 in February and has been on a significant down trend ever since.

Osborne pointed out the Canadian dollar is benefiting as much from a weak greenback and high oil prices as it is from the stronger-than-expected Canadian economy.

The Canadian dollar is not the only currency that has made gains against the U.S. dollar. Other commodity currencies like the Australian dollar and the New Zealand dollar has made major gains against the buck. However, the Canadian dollar was the best performing currency on Friday all due to the employment report.

Some economists and strategists said the strong employment number is proof of how resilient the Canadian economy is during what some are calling: "The worst recession since the Second World War."

However, the Canadian economy is not out of the recession yet. A stronger Canadian dollar could prove to be a worry for the export and manufacturing industries. Canada is an exporting nation and a weaker loonie helps businesses attract foreign investment. With parity on the horizon there is some concern that those dollars could move elsewhere in search of better bargains.

"Further appreciation in the currency may choke off early signs of growth as well cause further damage to expansionary possibilities in the medium term," said Richard Lee, chief currency strategist for OnlineForexTrading.com.