CANADA FX DEBT-C$ rebounds from six-month lows as US$ drops; jobs data eyed

Mon Oct 6, 2014 4:50pm EDT
 
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* Canadian dollar at C$1.1131 or 89.84 U.S. cents
    * Bond prices higher across the maturity curve

    By Solarina Ho
    TORONTO, Oct 6 (Reuters) - The Canadian dollar firmed
against its U.S. counterpart on Monday, backing away from the
more than six-month low hit last week as the currency took a
breather and investors looked ahead to key domestic jobs data
later in the week.
    A sharp drop on Friday had put the loonie within striking
distance of testing the low for 2014 at C$1.1279, which was seen
in March.
    The Canadian dollar also benefited from the falling U.S.
dollar, which saw its biggest one-day drop since January
following a 12-week rally, the greenback's longest streak of
gains in more than 40 years.
    Investors were taking profits as Friday's robust U.S.
employment report reinforced expectations that the U.S. Federal
Reserve will hike interest rates next year. In addition, the
central bank's latest bond buying program - known formally as
Quantitative Easing (QE) - is set to end this month. 
    "From a technical point of view, it certainly has got the
makings of a bit of a dollar correction at least for USD/CAD,"
said TD Securities' chief currency strategist, Shaun Osborne.
    "Volatility has picked up before as the Fed stepped away
from QE ... maybe this is what this is all about," he said.
    The Canadian dollar finished Monday's session at
C$1.1131 to the greenback, or 89.84 U.S. cents, stronger than
Friday's close of C$1.1259, or 88.82 U.S. cents.
    Analysts expect the currency pairing will return to the
trend it has seen over the last three months, however, as an
interest rate hike by the Fed will likely lift the greenback, to
the detriment of the Canadian dollar.
    "It's hard to argue against further upside potential for the
(U.S. dollar-Canadian dollar) pair, just because you've got
diverging monetary policies between the U.S. and Canada," said
Scott Smith, senior market analyst at Cambridge Mercantile Group
in Calgary.
    "The U.S. is going to look to raise rates sooner than Canada
will and there's still some mediocre data we have to muddle
along through before we see our export sector gain the needed
traction and robust growth to help the loonie gain back some of
its losses."
    On the data front, investors will take in a handful of
reports on the housing sector this week, but the main economic
event will be the labor market report for September, due on
Friday.
    Employers are expected to pick up the pace of hiring by
creating 20,000 new positions last month, more than recovering
the 11,000 jobs lost in August. The unemployment rate is seen
holding at 7 percent. 
    Canadian government bond prices were higher across the
maturity curve, with the two-year up 4 Canadian cents
to yield 1.108 percent, while the benchmark 10-year 
adding 3 Canadian cents to yield 2.088 percent.

 (Additional reporting by Leah Schnurr, editing by Meredith
Mazzilli and Gunna Dickson)