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TORONTO (Reuters) - The Canadian dollar was higher versus the U.S. dollar on Friday morning but off its earlier highs as an initial boost after the release of U.S. jobs data was reversed when the report was considered stronger than the headline suggested.
Canadian bond prices were higher across the curve as the jobs data supported the idea of more interest rate cuts by the U.S. Federal Reserve.
At 10:00 a.m., the Canadian currency was at C$1.0009 to the U.S. dollar, or 99.91 U.S. cents, up from C$1.0038 to the U.S. dollar, or 99.62 U.S. cents, at Thursday's close.
The Canadian dollar rallied to US$1.0070, valuing a U.S. dollar at 99.30 Canadian cents, immediately after the U.S. jobs data before turning back lower as investors digested the report.
Nonfarm payrolls in the United States dropped 17,000 in January, below expectations for a rise of 80,000.
But the report also included a revision that put December's new-job total at 82,000 from 18,000.
"People had been thinking if we get a negative on payrolls then just sell the (U.S.) dollar and that had an initial impact but it wore off quickly," said David Watt, senior currency strategist at RBC Capital Markets.
"The sentiment lingering overall is going to be that this is still a sign that the U.S. economy is slowing down ... but not as much as that initial shock value would indicate."
A recession in the United States would undoubtedly have a negative impact on Canada, which sends the bulk of its exports to the United States.
The U.S. data overshadowed a Canadian report that showed producer prices rose more than expected in December, while raw materials prices rose 0.2 percent, below the forecast 0.5 percent gain.
Overnight strength in the Canadian dollar, where it recouped some of the losses suffered during Thursday's session, was supported by a more stable stock market environment.
Equities have been playing a key role in the Canadian dollar's direction all year given global growth concerns and the likely impact on Canadian exports.
"Overnight equity markets boosted sentiment on the positive attitude towards risk, where so much of the past two weeks has been a negative attitude toward risk," Watt said.
"When equities are up you're going to get the currencies that are sensitive to risk strengthen."
Bond prices were higher across the curve after bouncing back and forth all morning as dealers digested the jobs data from the United States.
"I don't necessarily think it spells doom and gloom but it certainly doesn't come across as something that anyone should be cheering about," said Max Clarke, economist at IDEAglobal in New York. "So it shouldn't be deemed as positive for the (bond) market in general."
The overnight Canadian Libor rate was at 4.1483 percent, up from 4.1483 percent on Thursday.
Thursday's CORRA rate was 4.01 percent, up from 3.9978 percent on Wednesday. The Bank of Canada publishes the previous day's rate at around 9:00 a.m. daily.
The two-year bond rose 4 Canadian cents to C$101.92 to yield 3.155 percent. The 10-year bond rose 12 Canadian cents to C$100.07 to yield 3.862 percent.
The yield spread between the two- and 10-year bond was 70.6 basis points, up from 69.8 points at the previous close.
The 30-year bond slipped 17 Canadian cents to C$113.92 to yield 4.172 percent. In the United States, the 30-year Treasury yielded 4.318 percent.
The three-month when-issued T-bill yielded 3.35 percent, down from 3.39 percent at the previous close.