CANADA FX DEBT-C$ tumbles as domestic data disappoints, U.S. jobs jump

Fri Aug 5, 2016 4:41pm EDT
 
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(Adds strategist comment, CFTC data; updates prices to close)
    * Canadian dollar settles at $1.3164, or 75.96 U.S. cents
    * Bond prices mixed as maturity curve steepens

    By Alastair Sharp
    TORONTO, Aug 5 (Reuters) - The Canadian dollar sunk against
its surging U.S. counterpart on Friday as a slump in domestic
jobs and a record-wide Canadian trade deficit contrasted with a
robust U.S. jobs report.
    The divergent data pushed the loonie, as Canada's currency
is colloquially known, to its weakest level against the
greenback in more than a week, reversing a short-term trend of
moderate strength.
    Canada's trade gap unexpectedly widened to a record deficit
in June as export growth, key to the Bank of Canada's outlook,
disappointed and imports of vehicles and parts jumped.
 
    "For a small, open economy like ours that typically
generates a lot of growth from the external economy, this is
just not good news," said Shaun Osborne, chief currency
strategist at Scotiabank. 
    In addition, the Canadian economy unexpectedly shed 31,200
jobs last month, pushing the unemployment rate up to 6.9
percent. 
    The Canadian dollar ended the day trading at
C$1.3164 to the greenback, or 75.96 U.S. cents, much weaker than
Thursday's close of C$1.3022, or 76.79 U.S. cents.
    It spiked to its weakest since July 27 at C$1.32 shortly
after the economic data was released.
    "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 at BMO Capital Markets.
    The U.S. dollar jumped as U.S. employment increased more
than expected in July and wages picked up, raising the
probability of an interest rate hike from the Federal Reserve
this year.  
    The implied probability of a Bank of Canada rate cut rose to
17 percent after the Canadian data, overnight index swaps data
showed. It was 12 percent before the data. 
    Speculators reduced bullish bets on the loonie for the first
time in six weeks, Commodity Futures Trading Commission data
showed. Net long Canadian dollar positions fell to 17,758
contracts in the week ended August 2 from 23,180 contracts in
the prior week.
    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
 falling 23 Canadian cents to yield 1.069 percent.
    The yield on Canada's two-year bond fell 9.7 basis points
further below the yield on its U.S. equivalent, leaving the
spread at -20.6 basis points.
    The spread between Canadian 2-year and 10-year yields was
4.3 basis points wider at 54.9 basis points.

 (Additional reporting by Fergal Smith; Editing by Meredith
Mazzilli)