CANADA FX DEBT-C$ weakens as Canada sheds jobs, U.S. employment jumps

Fri Jul 8, 2016 5:06pm EDT
 
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(Adds strategist comment, Bank of Canada context; updates
prices)
    * Canadian dollar settles at C$1.3040 or 76.69 U.S. cents
    * Bond prices mostly higher across the maturity curve

    By Alastair Sharp
    TORONTO, July 8 (Reuters) - The Canadian dollar weakened
against its U.S. counterpart on Friday after data showed the
domestic economy unexpectedly shed 700 jobs and U.S. employment
growth surged in June.
    The currency hit is weakest level since June 28 shortly
after the release of the data before trimming losses to settle
at C$1.3040, or 76.69 U.S. cents, compared with Thursday's
official Bank of Canada close of C$1.3003, or 76.91 U.S. cents.
    The Bank of Canada has to decide next week whether to hold
its target rate steady at 0.5 percent, where it's been since
last July and is widely expected to stay, or to act post-Brexit
vote and a string of recent weak domestic data to stimulate the
economy.
    "Even though they probably haven't got enough ammunition to
trigger a rate cut, they should still be very cautious, not just
on today's employment report but the really terrible set of
indicators we had earlier this week," said Mark Chandler, head
of Canadian fixed income and currency strategy at RBC Capital
Markets.
    He was referring to a central bank survey released on Monday
that showed business sentiment remained subdued in the second
quarter, and especially a near record trade deficit reported on
Wednesday.  
    Canada lost 700 jobs when the market was expecting a 5,000
job increase, while the unemployment rate dipped as less people
sought work, Statistics Canada said on Friday. 
    While the Canadian jobs report was weaker than expected, the
move in the currency pair likely had more to do with the
increase in U.S. hiring, economists said.
    U.S. nonfarm payrolls rose by 287,000 jobs last month, the
largest gain since last October, the U.S. Labor Department said.
  
    The loonie, as Canada's currency is colloquially known, was
weaker against a string of other currencies too, outperforming
only the Swiss franc among major peers.
    Canadian government bond prices were mostly higher across
the maturity curve, though the two-year price slipped
half a Canadian cent to yield 0.468 percent. The benchmark
10-year gained 20 Canadian cents to yield 0.958
percent.
    The Canada-U.S. two-year bond spread was 14.1 basis points,
while the 10-year spread was -39.8 basis points.

 (Additional reporting by Allison Martell; Editing by W Simon
and Sandra Maler)