CANADA FX DEBT-C$ tumbles to one-week low as domestic data disappoints

Fri Aug 5, 2016 9:38am EDT
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* Canadian dollar at C$1.3166, or 75.95 U.S. cents
    * Bond prices mixed across the maturity curve

    By Fergal Smith
    TORONTO, Aug 5 (Reuters) - The Canadian dollar weakened
sharply to a one-week low against its U.S. counterpart on Friday
as a slump in domestic jobs and a record-wide Canadian trade
deficit contrasted with a strong U.S. jobs report.
    The Canadian economy unexpectedly shed 31,200 jobs last
month, driven by a decline in full-time positions that sent the
unemployment rate up to 6.9 percent, data from Statistics Canada
    In addition, Canada's trade gap unexpectedly widened to a
record deficit in June as imports of motor vehicles and parts
jumped while the increase in exports was lackluster.
    "It's a nightmare scenario for the Canadian dollar,
essentially a robust U.S. report and a pair of ugly Canadian
numbers. It doesn't get much worse than this," said Doug Porter,
chief economist, BMO Capital Markets.
    Lower oil prices added to pressure on the commodity-linked
Canadian dollar as a glut of crude and refined products weighed
on markets and investors eyed a possible stutter in China's
imports. U.S. crude prices were down 0.50 percent to
$41.72 a barrel. 
    At 9:21 a.m. EDT (1321 GMT), the Canadian dollar 
was trading at C$1.3166 to the greenback, or 75.95 U.S. cents,
much weaker than Thursday's close of C$1.3022, or 76.79 U.S.
    The currency's strongest level of the session was C$1.3008,
while it touched its weakest since July 29 at C$1.3175.
    The implied probability of a Bank of Canada rate cut rose to
17 percent after the data, overnight index swaps data showed. It
was 12 percent before the data. 
    In contrast, traders raised bets on a Federal Reserve rate
hike after the U.S. jobs report showed employers added more jobs
than expected last month. 
    Canadian government bond prices were mixed across the
maturity curve, with the two-year bond up 3.5
Canadian cents to yield 0.52 percent and the benchmark 10-year
 rising 5 Canadian cents to yield 1.04 percent.
    The yield on Canada's two-year bond fell 6.9 basis points
further below the yield on its U.S. equivalent, leaving the
spread at -17.8 basis points, as Canadian government bonds
outperformed U.S. Treasuries on the contrasting data.

 (Additional reporting by Alastair Sharp; Editing by Meredith