Canada dollar ends stronger after strong employment gains

Fri May 11, 2012 4:46pm EDT
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By Andrea Hopkins

TORONTO (Reuters) - The Canadian dollar closed stronger against its U.S. counterpart on Friday after unexpectedly strong Canadian job gains boosted bets on a rate hike, but global woes tempered gains.

Defying market expectations, Canada added 58,200 jobs in April, mostly full-time, after a whopping gain of 82,300 new positions in March.

The data increased expectations that the Bank of Canada could resume tightening monetary policy this year. Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that traders sharply increased bets on a rate hike in the second half.

Higher interest rates tend to strengthen a country's currency by attracting international capital flows.

"It certainly raises the possibility of the Bank of Canada moving on interest rates sooner rather than later," said Sal Guatieri, senior economist with BMO Capital Markets, which is forecasting a January hike.

The report briefly pushed the Canadian dollar above parity against the U.S. dollar, but market concern over Europe's festering debt crisis boosted safe-haven government debt and the U.S. currency, sending the Canadian dollar back below parity.

Following the Canadian jobs data, the currency climbed as high as C$ 0.9954 versus the U.S. dollar, or $1.0046.

Global stocks retreated on the day amid the continued concern about Europe, while oil prices fell after weak data from China reduced demand expectations. <MKTS/GLOB>   Continued...