CANADA FX DEBT-C$, bonds slip in cautious trade ahead of US jobs

Thu Sep 2, 2010 3:31pm EDT
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   * C$ slips to 94.89 U.S. cents
 * Bonds hold lower
 * Markets cautious ahead of Friday's U.S. jobs report
 TORONTO, Sept 2 (Reuters) - Canada's dollar turned lower
against the U.S. currency on Thursday, giving up some of the
previous session's strong gains as market players were guarded
ahead of Friday's key U.S. non-farm payrolls report.
 Investors are closely monitoring the jobs report for August
for signs of whether the U.S. economy can forge a stronger
recovery after Thursday's data dampened fears of a new
 The monthly employment report is expected to show a third
straight decline. [ID:nN31235915]
 "We really did have a tremendous day yesterday and we have
nonfarm which is looming tomorrow so I think as we await that,
there is a holding pattern going on in some currencies," said
Camilla Sutton, chief currency strategist at Scotia Capital.
 "Canada has just given up some of yesterday's gains."
 At 3:10 p.m. (1910 GMT), the Canadian dollar CAD=D4  was
at C$1.0538 to the U.S. dollar, or 94.89 U.S. cents, down from
C$1.0520 to the U.S. dollar, or 95.06 U.S. cents, at
Wednesday's close. It had jumped more than a penny the previous
session as risk appetite rose on strong economic data that
soothed investor fears about the lagging recovery.
 Thursday's slate of U.S. data showed pending sales of
previously owned U.S. homes rebounded unexpectedly in July and
new claims for jobless benefits fell last week. ECON
 But the currency turned lower even as riskier assets such
as the North American stock markets held firm, while
influential oil prices were also up on the day.
 A Reuters poll on Thursday found global currency
strategists expect the Canadian dollar will be little changed
against the greenback over the next few months, and gain
slightly after that. They said the chances of it reaching
parity with the U.S. dollar have diminished. [CAD/POLL]
 Domestic bonds were weaker across the curve as double-dip
fears receded on the positive economic data.
 But the big test is still Friday's U.S. jobs report, which
could firm up the market's expectations of the Bank of Canada's
next interest rate move, given that the central bank has said
it is monitoring developments in the United States.
 The sputtering U.S. economy has displaced European debt
problems as the top worry for Canadian policymakers, but even
as gloom settles over the U.S. Federal Reserve, the Bank of
Canada looks set to raise rates for a third time this year.
 The Bank of Canada's Sept. 8 rate decision is one of the
closest calls in some time, markets are pricing in an almost
even probability of a hike based on yields on overnight index
swaps, according to a Reuters calculation. BOCWATCH
 Another Reuters poll on Thursday showed most primary
dealers and global forecasters expect the Bank of Canada to
boost interest rates next week but then step to the sidelines
for at least the rest of the year. [CA/POLL]
 Canada's two-year bond CA2YT=RR dipped 4 Canadian cents
to yield 1.280 percent, while the 10-year issue CA10YT=RR
dropped 20 Canadian cents to yield 2.870 percent.
 In new issues, the province of British Columbia sold C$500
million of bonds due 2042. [CA-TNC]
 Canadian assets were little changed by the European Central
Bank's decision to keep interest rates on hold at a record low,
as expected, amid a lopsided economic recovery and continued
worries about the banking sector. [ID:nFRK015200]
 (Reporting by Ka Yan Ng and Claire Sibonney; Editing by
Jeffrey Hodgson )