CANADA FX DEBT-C$ climbs as U.S. jobs report absorbed

Fri Jul 2, 2010 4:42pm EDT
 
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 * Currency ends at 94.13 U.S. cents
 * Bonds slightly lower after recent runup
 * U.S. nonfarm payrolls fall 125,000 in June
 * Next week's main focus on Canada jobs report for June
 (Updates to close)
 By Ka Yan Ng
 TORONTO, July 2 (Reuters) - The Canadian dollar ended
firmer against the greenback on Friday as investors looked past
soft U.S. jobs data for June.
 The United States absorbs about three-quarters of all
Canadian exports and recent weak spots in both the Canadian and
U.S. economies have muddied the recovery outlook.
 "We've had a tremendous shift in terms of the global growth
outlook," said Camilla Sutton, currency strategist at Scotia
Capital.
 "We've seen weaker data from the U.S., weaker data from
Canada, and, more importantly, we've seen a major shift in the
stance of global policymakers away from supporting growth at
all costs and towards fiscal responsibility."
 U.S. nonfarm payrolls dropped in June for the first time
this year, down 125,000 jobs as temporary census employment
came to an end. Analysts polled by Reuters had expected a
decline of 110,000 jobs last month. [ID:nN01165161]
 The Canadian dollar hit a session low of C$1.0669 to the
U.S. dollar, or 93.73 U.S. cents, after the jobs report, and
then seesawed around the unchanged mark for much of the
afternoon session before making a run higher in the last hour.
 The currency finished at C$1.0624 to the U.S. dollar, or
94.13 U.S. cents, up from Wednesday's official North American
market close of C$1.0646 to the U.S. dollar, or 93.93 U.S.
cents. Thursday was the Canada Day holiday, and the Bank of
Canada did not give an official closing number.
 David Watt, senior currency strategist at RBC Capital
Markets, said the outlook for the Canadian dollar is murkier
than it was earlier in the year.
 Less than three months ago, the U.S. and Canadian
currencies were trading one for one, but the shift in recovery
expectations and turmoil in Europe have since weighed on
Canadian dollar.
 While still optimistic on Canada's economic prospects, Watt
said the Canadian dollar may be a bit weaker than he had
originally anticipated earlier in the year.
 "The key reason that a lot of those things is unfolding is
that the economic outlook is less clear than it was before," he
said. "In general, it's somewhat sloppier than we anticipated.
That leaves open questions."
 BOND PRICES UNWIND GAINS
 Canadian government bond prices fell on Friday, mirroring
action in U.S. Treasuries, which suffered a mild bout of
profit-taking.
 Initially, there were small gains following the U.S. jobs
figures, adding to the recent runup in bond prices across the
curve, but the final assessment was that the figures were not
as bad as the most pessimistic forecast.
 Next week's main event will be Canada's employment figures
for June, which are expected to show 15,000 jobs were added in
the month with the unemployment rate staying steady at 8.1
percent. [ID:nN02188375]
 The data will be the most up-to-date snapshot of June
activity after a recent wave of data has suggested the economy
has been stalling after a stunning first quarter. Those signals
have caused market players to scale back forecasts for the pace
of interest rate hikes by the Bank of Canada. [ID:nN30434455]
 Expectations for a Bank of Canada rate rise this month, as
measured by yields on overnight index swaps, dropped to around
50 percent this week from around 80 percent last week.
BOCWATCH
 "The jobs numbers in Canada are actually going to show some
solid growth in Q2 even though some of the activity numbers
have been squishy of late," Watt said.
 "This is a tough decision (for the Bank of Canada) the way
the things are stacking up. It looks like they'll have to
swallow hard and hike rates again in July and then think about
what they'll have to do in September."
 The two-year government bond CA2YT=RR fell 8 Canadian
cents to yield 1.1.446 percent, while the 10-year bond
CA10YT=RR slid 12 Canadian cents to yield 3.095 percent.
 (Additional reporting by John McCrank; editing by Peter
Galloway)