The Canadian dollar defied gravity Friday, rising above $1.02 (U.S.) at one point, as the high-flying currency got additional lift from a report showing Canada's unemployment rate fell last month to the lowest level in 33 years.
It was a day of astonishing news for the Canadian economy, which had been expected to start feeling the pain from the summer subprime mortgage crisis in the United States that many thought would send shock waves rippling into in this country.
Statistics Canada reported early Friday that the jobless rate had tumbled to 5.9 per cent in September and that the economy churned out an additional 51,100 new jobs during the month over August.
It was the first time the unemployment rate had been below six per cent since November 1974, when Pierre Trudeau was the prime minister, Canada had not yet repatriated the Constitution and disco music was just beginning to catch fire.
The loonie jumped to 101.4 at the opening of trading, up 1.14 cents from Thursday's close. And it kept rising, at one time lifting above 102.19 cents US, a level that hasn't been surpassed since November 1976.
The loonie closed the trading day in Toronto up 1.59 cents to 101.85 (U.S.)
Some analysts speculated the Canadian dollar was also helped by revised U.S. figures showing job creation was higher in August than previously reported and kept growing, by 110,000, in September.
Analysts said the U.S. job numbers eased fears of an American recession that would eventually sideswipe the rosy economic picture in Canada, which counts its southern neighbour as its biggest export customer.
“For the average Canadian, this is good news from head to toe,” said Douglas Porter, deputy chief economist at BMO Capital Markets.
“This is a classic example where Main Street doesn't respond to what goes on in Bay Street or Wall Street. It's still an open question whether we're going to see a response to the tightening in credit at all.”
If there was one downside in the jobs numbers, it was that there were only 7,400 private-sector jobs created in September, compared to 59,000 in the public sector. Self-employment dropped by 15,200 as Canadians in this category took advantage of the good economy to find jobs.
So far this year, the national economy has created 283,000 new jobs, a rise of 1.7 per cent during that period.
There were more surprises in the September numbers, including that employment among what is called core-age workers — people between 25 and 54 years — rose by 40,000, the first significant gain for this age-group since the start of the year.
And manufacturing-rich Ontario, which had been a laggard in job growth most of the year, also joined the job-creation economy last month, producing 30,000 new full-time jobs and boosted by a surge in hirings to support the upcoming Ontario election.
Still, Ontario's jobs growth for the first nine months of this year was 1.2 per cent, well below the national average.
The tight labour market in many parts of Canada also continued to push wages higher, as employees earned 4.2 per cent more per hour last month than they did a year earlier, the largest rise in wages since 1997. That means wages were rising at least twice as fast as inflation, which stood at 1.7 per cent in August.
The higher wages are likely to keep the consumer demand part of the economy humming as more money in the pocket translates into spending on everything from food, clothes, cars and homes.
“But from the Bank of Canada perspective, this isn't good a positive development,” said Beata Caranci, director of forecasting for the Toronto-Dominion Bank. She said higher wages in a tight labour market will likely keep the bank's concern about inflation top of mind.
The key loser in the jobs report was, once again, the manufacturing sector, which shed another 3,000 jobs. The sector has lost 78,500 during the first nine months of this year, a 3.7 per cent decline, and is likely to feel more pain with the loonie's continued strength.
Global Insight Canada managing director Dale Orr said it was unlikely that manufacturers, which depend on exports to the U.S., will be getting much relief from the loonie anytime soon.
The forecasting firm is revising its view on the loonie, predicting it will hit $1.05 by year's end, largely because the U.S. is expected to cut interest rates twice more in 2007 while the Bank of Canada remains on the sidelines.
“The Bank of Canada will be sitting on its hands at least until Mark Carney is pulling the levers,” said Orr. “This news makes certain that the bank will not be cutting interest rates any time soon.”
Mr. Carney, a former investment banker with Goldman Sachs and the No. 2 man in the Finance Department, was appointed the new bank government Thursday. He begins his duties on Feb. 1.
