May 11, 2012 / 1:47 PM / 5 years ago

CANADA FX DEBT-C$ rallies after surprisingly strong jobs data

* C$ firms to C$0.9981 vs US$, or $1.0019

* Canada adds 58,200 jobs in April

* Unexpectedly strong data boosts rate hike bets

* Bond yields jump after report, underperform Treasuries

By Claire Sibonney

TORONTO, May 11 (Reuters) - The Canadian dollar rallied to a session high against its U.S. counterpart on Friday, turning positive on the day and breaking through parity with the greenback, after data showed Canada added much more jobs than expected in April.

Defying market expectations, Canada added 58,200 jobs in April, mostly full-time, after a whopping gain of 82,300 new positions in March. (ID:nL1E8GBJ5M)

The data increased expectations that the Bank of Canada could resume tightening monetary policy this year. O vernight 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 has pushed the Canadian dollar back above parity against the U.S. dollar and that strength could well persist.”

Following the data, the currency climbed as high as C$0.9981 versus the U.S. dollar, or $1.0019, strengthening from around C$1.0040, or 99.60 U.S. cents heading in to the report.

The Canadian dollar was the top performer among the G10 currencies amid a largely negative global backdrop on Friday as Greece appeared unable to form a government, while Chinese data came in unexpectedly weak and JPMorgan rattled markets with a shock trading losses.

“For the currency it probably perpetuates the range trade that we’ve been in here for a little longer,” said Shaun Osborne, chief currency strategist at TD Securities.

“The broader backdrop of risk aversion and obviously concerns about the banking sector in the U.S. again probably means that it’s going to be a bit of a tough slog for the Canadian dollar to gain significantly against the U.S. dollar from here.”

Still, Osborne said the Canadian dollar could revisit a range of C$0.9920-40 against the U.S. dollar in the next day or two, and will likely see more outperformance on the crosses, not ing the currency reached a 2012 low against the Australian dollar and <AUD CAD=> and moved towards an important support level against the euro.

At 9:21 a.m. (1321 GMT), the Canadian dollar stood at C$0.9986 versus the U.S. dollar, or $1.0014 U.S. cents, firming from Thursday’s North American session close at C$1.0017 versus the U.S. dollar, or 99.83 U.S. cents.

Canada’s currency has been supported since the latter half of April on ramped-up expectations of interest rate hikes by the Bank of Canada. The central bank surprised investors with a more positive domestic economic outlook and an explicit warning that it may have to start raising rates again.

Following the jobs report, Canadian bond prices turned negative and yields jumped, underperforming U.S. Treasuries across the curve.

The yield on the two-year Canadian government bond , which is especially sensitive to expectations for Bank of Canada interest rate moves, rose to 1.304 percent from 1.226 percent just before the release.

The benchmark 10-year bond yield also advanced to yield 1.994 percent from 1.965.

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