CANADA FX DEBT-C$ gains on jobs data; focus on Bank of Canada's next move

Fri Jul 10, 2015 5:17pm EDT
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(Adds closing figures, comments from USForex, Yellen comments
and the outlook for the Bank of Canada)
    * Canadian dollar at C$1.2679 or 78.87 U.S. cents
    * Bond prices lower across the maturity curve

    By Solarina Ho
    TORONTO, July 10 (Reuters) - The Canadian dollar recovered
from midsession losses and gained against the greenback on
Friday, propelled by stronger-than-forecast Canadian employment
    Predictions of further weakness continued to hover over the
loonie, however, particularly due to heightened expectations
that the Bank of Canada could announce a 25 basis point interest
rate cut next week as "insurance" to help stimulate growth in
the economy, which has been largely stagnant through the first
half of the year.
     "We're seeing that get priced into USD/CAD at the moment,
hence why we've moved all the way to C$1.27 over the last few
sessions. That's quite a move," said Lennon Sweeting, currency
strategist at USForex in Toronto.
    "I tend to think it's just noise, I don't see a rate cut as
a necessity at the moment ... A rate cut from Bank of Canada
would be a little too cautionary at this point in time and would
probably lead USD/CAD to march into the C$1.30s fairly quickly."
    The Canadian dollar finished the day at C$1.2679 to
the greenback, or 78.87 U.S. cents, stronger than the Bank of
Canada's official close of C$1.2707, or 78.70 U.S. cents, on
    The loonie has been mostly range-bound this week after
shedding nearly 4 percent since mid-June. It traded between
C$1.2663 and C$1.2754 during the session, touching its firmest
level in the morning, shortly after the jobs report was
    The report showed the economy shed 6,400 jobs in June, fewer
than the 10,000 jobs expected to be lost, prompting markets to
scale back some of their bets on the likelihood of a rate cut.
    "There had been concern of a risk of a more significant
decline that was even weaker than the consensus call. So this
report has eased those concerns," said Paul Ferley, assistant
chief economist at Royal Bank of Canada.
    Many currency strategists still see the loonie heading
toward C$1.28 to C$1.30 over the longer term as Bank of Canada
policy diverges from that of the U.S. Federal Reserve. Fed Chair
Janet Yellen explicitly said on Friday she expects the Fed to
hike rates later this year. 
    Canadian government bond prices were lower across the
maturity curve, with the two-year price down 7
Canadian cents to yield 0.499 percent and the benchmark 10-year
 falling 80 Canadian cents to yield 1.685 percent.
    The Canada-U.S. two-year bond spread was -14.6 basis points,
while the 10-year spread was -71.8 basis points.

 (Reporting by Solarina Ho Editing by W Simon; and Peter