Foreign currency debt in Canada – The Canadian dollar rises with increased jobs data and expectations of raising interest rates – 06-10-2023

The Canadian dollar rose against its US counterpart on Friday, reversing some of its weekly decline, after stronger-than-expected local jobs data boosted expectations of further interest rate hikes by the Bank of Canada.

The Canadian dollar rose 0.4% to 1.3650 to the dollar, or 73.26 US cents, continuing its recovery from a six-month low of 1.3785 the previous day.

The week fell 0.5% as rising bond yields spooked investors around the world.

Data showed the Canadian economy more than tripled expectations by adding 63,800 jobs in September and wages continued to rise, raising the possibility of another interest rate hike.

“With today’s report, it seems reasonable that the Bank of Canada will raise interest rates for an extended period of time,” said Michael Greenberg, portfolio manager at Franklin Templeton Investment Solutions.

Financial markets see a roughly 40% chance of monetary policy tightening when the Bank of Canada announces its next policy on October 25, compared to 28% before the data is released.

US job growth also rose in September, but the US currency failed to maintain its previous gains against a basket of major currencies.

Analysts are sticking with their optimistic forecasts for the Canadian dollar for next year, insisting the currency is undervalued and could benefit from Canada’s close economic ties with the United States, a Reuters poll shows.

Oil prices, one of Canada’s major currencies, rose 0.6% to $82.79 a barrel, paring some recent losses, while Canadian government bond yields rose across most of the curve.

The 10-year bond yield rose two basis points to 4.155%, but fell from the 16-year high reached on Tuesday at 4.292%. (Reporting by Fergal Smith, Editing by Andrea Ritchie and Sandra Maler)