CANADA FX DEBT-C$ ends slide on "shocking" jobs data

Thu Apr 5, 2012 4:35pm EDT
 
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* C$ ends at C$0.9938 vs US$, or $1.0062
    * March jobs gain highest since 2008
    * Spanish debt concerns weigh
    * Bond prices mixed

    By Jon Cook	
    TORONTO, April 5 (Reuters) - The Canadian dollar rallied
against its U.S. counterpart on Thursday, boosted by a stunning
jump in Canadian employment numbers in March that halted a
six-month string of soft job growth and signaled the economy was
gaining traction.	
    The 82,300 jobs added in March was the largest monthly job
increase since September 2008, Statistics Canada said on
Thursday. It was also eight times higher than the gain of 10,000
jobs that had been predicted by economists in a Reuters survey.
 	
    "Whenever you get a huge number like that it is a shocking
development," said Benjamin Reitzes, senior economist and
foreign exchange strategist at BMO Capital Markets.	
    Canada's jobless rate also dipped to a six-month low of 7.2
percent from 7.4 percent in February, more than 1 percent below
the comparable U.S. rate.	
    Even though Canada had recovered all the jobs it lost during
the recession by early last year, employment growth had stalled
over the past six months and began underperforming that in the
United States for the first time since the 2008-09 recession. 	
    "There had been concern with languishing job gains," said
Paul Ferley, assistant chief economist for Royal Bank of Canada.
"But this pick-up indicates the situation is not as worrying as
some of the earlier data suggested, so more momentum in the
economy."	
    The strong domestic data helped the Canadian currency
reverse a two-day slide against the U.S. dollar, prompted by
fresh European debt concerns and after the greenback was boosted
this week by signals the U.S. Federal Reserve was less open to
further monetary stimulus.	
    The Canadian dollar finished at C$0.9938 versus the
U.S. currency, or $1.0062, up from Wednesday's close at C$0.9964
versus the U.S. currency, or $1.0036. It was up 0.4 percent for
the Easter holiday-shortened week.	
    Canada's dollar also outperformed most major currencies,
rising sharply against the euro, sterling and Swiss franc.	
    The Canadian jobs bounce had traders increasing bets on a
rate hike by the Bank of Canada in the second half of 2012, as
reflected by overnight index swaps. 	
    "The stronger than expected data raises the prospect of the
Bank returning to tightening mode sooner than was previously
expected and with that offering support to the Canadian dollar,"
said Ferley.	
    Higher interest rates tend to help a currency strengthen by
attracting global investment flows.	
    A Reuters poll released on Wednesday showed the Canadian
dollar at exactly $1.00 in one, three and six months from now.
In a year, the currency is expected to strengthen slightly to
C$0.988 versus the U.S. dollar. 	
    For the last two months, the currency has stayed within a
roughly 2-cent window between C$0.9842 and C$1.0052.	
    Reitzes said factors that could push it outside that range
included upside pressure from rate hike expectations or downward
pressure from weak North American economic data, a sharp
slowdown in Chinese growth, or an escalation of Europe's debt
crisis.	
    Fears about Spain's high debt level pushed the euro down
broadly on Thursday to its lowest level against the U.S. dollar
in three weeks. The single currency was further pressured by
U.S. data that showed weekly American jobless claims fell to the
lowest level in nearly four years.  	
    Canadian government bond prices were mixed, reflecting the
contrast in sentiment on either side of the Atlantic and
increase in rate hike expectations.	
    Canada's 2-year bond was down 8 Canadian cents to
yield 1.259 percent, while the 10-year bond rose 2
Canadian cents to yield 2.128 percent.	
    Canadian bonds underperformed their U.S. counterparts after
the strong jobs data.