By Chris Fournier Dec. 4 (Bloomberg) -- Canada’s dollar was little changed, erasing an earlier advance, as traders bought back the U.S. currency to cover wrong-way wagers and crude oil, Canada’s biggest export, declined. The biggest rally in the U.S. dollar since January snuffed out an advance in commodities and equities as an unexpected drop in the U.S. unemployment rate triggered bets the Federal Reserve will lift borrowing costs. Gold slid the most in a year. “It looks like a lot of follow through on short covering,” or bets that the U.S. dollar would decline, said Sacha Tihanyi, a currency strategist in Toronto at Scotia Capital, a unit of Canada’s third-largest bank. “All currencies are coming off as is oil, and equities are struggling to stay afloat.’ The Canadian currency traded at C$1.0574 per U.S. dollar at 4:21 p.m. in Toronto, where it closed yesterday. It had a weekly gain of 0.4 percent. One Canadian dollar equals 94.56 U.S. cents. Canada’s dollar, nicknamed the loonie for the aquatic bird on the one-dollar coin, earlier climbed as much as 1.3 percent after a Canadian government report showed employers added more jobs last month than economists forecast, adding to speculation the central bank will raise interest rates. The economy added 79,100 jobs after shedding 43,200 in October, Statistics Canada said today in Ottawa. The median forecast of 20 economists in a Bloomberg survey was for an increase of 15,000. Canada’s unemployment rate fell to 8.5 percent, from 8.6 percent in October. The Canadian currency was still the third-best performer against the greenback among the 16 most-traded currencies tracked by Bloomberg. South Korea’s won and Mexico’s peso were the top two gainers. ‘Resilient Oil’ The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, rose 1.6 percent to 75.811 at 3:49 p.m. in New York, the biggest gain based on closing prices since Jan. 20. “The economic side of the equation is positive for the Canadian dollar,” said George Davis, chief technical analyst for fixed-income and currency strategy in Toronto at Royal Bank of Canada, the nation’s largest lender. “Even though oil has come off a little bit in the last week or so, it’s still fairly resilient, close to $77 a barrel.” A Labor Department report showed the U.S. economy cut 11,000 jobs, versus a median forecast in a Bloomberg survey that called for cuts of 125,000. The U.S. is Canada’s largest trading partner. Employment Boost Traders raised bets on future rate increases after the employment reports. The yield on the overnight index swap due in nine months, based on predictions for the Bank of Canada’s rate at that time, climbed to 0.36 percent, the highest in more than a month, from 0.33 percent yesterday. “The employment report was much better than anyone anticipated today, which certainly gave a boost to the Canadian dollar,” said Steve Butler, director of foreign-exchange trading in Toronto at Bank of Nova Scotia, Canada’s third- largest lender. “We have moved back to a pretty important level in the exchange rate at 1.045. We’re just above it now.” Government bonds fell, driving the 10-year note’s yield higher by eight basis points, or 0.08 percentage point, to 3.32 percent. The price of the 3.75 percent security maturing in June 2019 dropped 67 cents to C$103.50. Bank of Canada policy makers left the overnight lending rate at a record low 0.25 percent at their last meeting in October and reiterated a pledge to hold it there through June 2010, barring a change in the inflation outlook. The rate was 4.5 percent when the bank began cutting it in December 2007. The next policy meeting is scheduled for Dec. 8. Traders are betting on which countries will be the first to raise interest rates as the global economy shows signs of emerging from the worst recession in more than half a century. Investors tend to favor the currencies of nations whose borrowing costs are rising because yields are higher. Crude oil for January delivery dropped 86 cents to $75.60 a barrel on the New York Mercantile Exchange. To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

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