February 3, 2012 / 1:17 PM / 5 years ago

Canadian dollar sails to 3-month high on U.S. jobs data

3 Min Read

TORONTO (Reuters) - The Canadian dollar bounced to its strongest level in just over three months on Friday as a surge in U.S. job creation boosted investor confidence about the outlook for the world's biggest economy.

The currency surged to C$0.9928 to the U.S. dollar, or US$1.0073, the strongest level since October 31, after data showed the American economy added 243,000 jobs, the most since last April. The figure easily beat economists' expectations for a gain of only 150,000.

The currency earlier hit a session low of C$1.0034 to the U.S. dollar following soft Canadian jobs data.

"The U.S. employment completely subsumed the Canadian equivalent and the general elation of strong economic data around the world drove risk currencies and assets higher, and the Canadian dollar ended soaring on the back of that," said Eric Lascelles, chief economist at RBC Global Asset Management.

The Canadian currency ended the session at C$0.9936 against the greenback, or US$1.0064, up from its Thursday finish at C$0.9996, or US$1.0004. The currency gained 0.7 percent for the week, its fourth weekly rise in a row.

Canada's economy created a negligible 2,300 net new jobs in the month, Statistics Canada said on Friday, a far cry from the 23,100 that market players had predicted.

The jobless rate ticked higher to 7.6 percent from 7.5 percent, the highest level since April 2011.

Analysts in a Reuters poll had predicted 23,100 new positions and a jobless rate holding steady from December at 7.5 percent.

"In terms of what it does for the Bank of Canada, it's probably fairly limited. I think most expect the Bank of Canada to be on hold at least until mid-2013, so potentially it opens the door for them to sound a little more neutral," said Camilla Sutton, chief currency strategist at Scotia Capital.

Most economists have forecast the bank will keep rates on hold at 1 percent, where they have been since mid-2010, until 2013. But overnight index swaps have priced in some chance of a rate cut. <CA/POLL>

Higher interest rates tend to help currencies strengthen by attracting international capital flows, and the prospect of monetary easing typically weakens them.

Shaun Osborne, chief currency strategist at TD Securities, said the currency outperformed against most of the crosses, including the euro, yen and Swiss franc.

"The commodity currencies are generally benefiting from this environment," he said. Osborne sees the Canadian dollar trading in a tight range of C$0.9850-80 to C$1.0030 against the greenback.

Government bond prices mirrored the big U.S. Treasury market, which plunged following the U.S. jobs data.

Debt yields there also hit session highs after data showed the U.S. service sector expanded more than expected in January, pointing to improving economic momentum.

The two-year Canadian bond shed 9 Canadian cents to yield 1.041 percent, while the 10-year bond dropped 64 Canadian cents to yield 2.018 percent. The 30-year sank C$1.40 to yield 2.612 percent.

Additional reporting by Euan Rocha; editing by Rob Wilson

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