January 9, 2015 / 2:48 PM / 3 years ago

CANADA FX DEBT-U.S., Canada jobs data drag C$ to 5-1/2 lows

TORONTO, Jan 9 (Reuters) - The Canadian dollar stumbled to its weakest level in more than 5-1/2 years following North American jobs data that showed a weaker-than-expected labor market in Canada and sturdy gains in the United States, further evidence that the Federal Reserve is likely to raise interest rates this year.

Canada shed 4,300 positions in December after losing 10,700 jobs in November. Market forecasters had estimated an increase of 15,000 jobs. The overall unemployment rate held at 6.6 percent.

Disappointment in the headline figures was somewhat tempered by the fact that wages were higher, losses were skewed toward part-time work, and full-time figures were robust, economists noted.

In the United States, nonfarm payrolls rose 252,000 last month.

“The combination of a solid U.S. result and a soggy Canadian number is more bad news for the Canadian dollar,” said Doug Porter, chief economist at BMO Capital Markets.

The Canadian dollar, which was also underperforming against most other currencies, slumped to C$1.1890 vs the greenback, or 84.10 U.S. cents. This was more than half a cent weaker than just prior to the data’s release and Thursday’s close of C$1.1836, or 84.49 U.S. cents.

It was also the currency’s weakest level since May 2009.

The Canadian economy has been lagging the United States, and the U.S. central bank is widely expected to raise interest rates before the Bank of Canada.

Such a U.S. rate increase is expected to keep pressure on the Canadian dollar this year, according to a Reuters poll earlier this week.

“I think the strong U.S. payroll report today suggests that the U.S. is still on track to reach its 3 percent above trend growth rate,” said Todd Mattina, chief economist and strategist at Mackenzie Investments.

“That’s going to increase the chance that the feds will lift interest rates by mid-2015 and that should add pressure on the U.S. dollar against major currencies, including the loonie.”

Oil prices, on track for a seventh straight weekly drop, added to the loonie’s woes. Key producers showed no signs of paring output despite the global oversupply. Canada is a major exporter and the currency has been tracking crude prices, which have sunk more than 50 percent since June. [O/R}

Canadian government bond prices were mixed across the maturity curve. The two-year bond added 1 Canadian cent to yield 0.977 percent, while the benchmark 10-year bond slipped 2 Canadian cents to yield 1.710 percent.

Additional reporting by Mike De Souza and Susan Taylor in Toronto; Editing by Steve Orlofsky

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