CANADA FX DEBT-C$ crests to 12-month high as jobs top views

Fri Sep 7, 2012 4:25pm EDT
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* C$ touches C$0.9766, or C$1.0240, strongest since Sept
    * Canada adds 34,300 jobs in August, above expectations
    * U.S. adds 96,000 jobs, below expectations
    * Bond yields rise across curve

    By Solarina Ho
    TORONTO, Sept 7 (Reuters) - The Canadian dollar peaked to
its firmest level in a year against its U.S. counterpart on
Friday as a "perfect storm" of risk appetite and
stronger-than-expected domestic employment data pushed the
currency through the C$0.98 level.
    The Canadian economy added 34,300 jobs last month, topping
all expectations of analysts surveyed by Reuters. Canada has
recouped all the jobs lost in the recession, and employment
stands 176,600 higher than in August 2011, with most of the
increases in full-time positions.  
    "It's likely to support the already hawkish stance of the
Bank of Canada. We've had a slew of some disappointing domestic
data recently, so this is a positive development for the
Canadian dollar," said Camilla Sutton, chief currency strategist
at Scotiabank.   
    By contrast, in the United States jobs growth slowed sharply
in August, with nonfarm payrolls increasing less than expected.
The weak report strengthens the case for the Federal Reserve to
pump more money into the sputtering economy. 
    Fed Chairman Ben Bernanke has said the U.S. central bank is
seriously considering a third round of monetary policy easing to
help counter the "grave" stagnation of the U.S. labor market.
    "The surprisingly strong Canadian employment numbers
relative to the disappointing U.S. numbers gave Canada a boost
and on top of that, the weak U.S. numbers prompted more
speculation of QE3," said Benjamin Reitzes, senior economist and
foreign exchange strategist at BMO Capital Markets.   
    The currency finished its North American session at C$0.9782
against the U.S. dollar, or $1.0223, from Wednesday's close of
C$0.9828, or $1.0175. Earlier, it touched C$0.9766, or C$1.0240,
matching the level hit on Sept. 19, 2011.
    The Canadian dollar had already been buoyed by Thursday's
announcement by the European Central Bank that it will launch a
new and potentially unlimited bond-buying program to lower
borrowing costs for struggling euro zone countries.
    "It's kind of a perfect storm for Canada of good domestic
news and the right international environment," said Adam Cole,
global head of FX strategy at Royal Bank of Canada in London.
    Cole said the currency may lose some momentum as it
approaches the C$0.9700 level, adding there's not much support
after that until the currency reaches the mid-C$0.90's level. 
    The currency is unlikely to see parity in the near term, he
said. "I think you'd have to see a wholesale sell-off in risk to
get that."
    While the situation in Europe appears contained in the near
term, analysts say there are still a number of hurdles ahead,
the next one being the German constitutional court's ruling on
the euro zone bailout fund scheduled for Sept. 12.
    Market watchers are also waiting to see when the Fed might
announce a fresh round of stimulus. Reitzes said markets have
priced in action before the end of the year, but have not fully
priced in monetary easing as early as next week, adding the
loonie could soar further if the Fed decides on stimulus moves
at their next meeting on Sept. 12-13.
    "You really can't get much further from where we are now,
without getting officials concerned about the strength in the
dollar," Reitzes cautioned.
    Canadian government bonds were higher across the curve, with
the two-year bond down 3.5 Canadian cents to yield
1.183 percent and the benchmark 10-year bond 
slipping 14 Canadian cents, yielding 1.854 percent.