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