CANADA FX DEBT-C$ hits nearly 2-1/2 year high on jobs data

Fri Feb 4, 2011 5:04pm EST
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   * C$ hits highest point since May 2008
 * Bonds sink across the curve
 * Canada adds 69,200 jobs vs forecast 15,000
 * U.S. payrolls up a meager 36,000
 (Updates to market close)
 By John McCrank
 TORONTO, Feb 4 (Reuters) - The Canadian dollar powered to
its highest level against the U.S. dollar since May 2008 on
Friday after data showed that Canada produced far more jobs
than expected in January, while U.S. job gains were tepid.
 The currency rose as high as C$0.9832 to the U.S. dollar,
or $1.0171 after Statistics Canada said the economy added
69,200 new positions, more than quadruple the 15,000 that
markets had expected. [ID:nN04174016]
 The unemployment rate, which had been forecast to remain
unchanged, grew to 7.8 percent from 7.6 percent as more people
entered the workforce.
 In the United States, the data showed a rise of 36,000 jobs
in January, far less than the 145,000 increase the market had
expected, but the unemployment rate fell to its lowest level
since April 2009.
 The contrast was key to the Canadian dollar's
outperformance of its U.S. counterpart, said David Watt, senior
currency strategist at RBC Capital Markets.
 "It took a fairly startling jobs number in order to beat
the U.S. dollar, but we did manage to be the only currency to
beat the U.S. dollar today," he said.
 The Canadian dollar CAD=D4 closed at C$0.9884 to the U.S.
dollar, or $1.0112. That was up from Thursday's North American
close at C$0.9910 to the U.S. dollar, or $1.0091.
 The modest U.S. jobs gain was at odds with other U.S. data
for January, which had suggested employment growth was picking
up, but severe snow storms that slammed large parts of the
country may have been partly to blame for the weak figure.
 The weak U.S. headline number did not have a deep impact on
the U.S. dollar, which allowed the Canadian dollar to
strengthen on the back of Canada's own set of job figures and
outperform all the other major currencies, said Camilla Sutton,
chief currency strategist at Scotia Capital.
 The strong Canadian data and the big drop in the U.S.
unemployment rate fueled economic recovery hopes, weakening
demand for safe-haven government debt and keeping Canadian bond
prices in the red.
 "The data raises the risk that the Bank of Canada could
resume raising interest rates sooner than expected," said Sal
Guatieri, senior economist at BMO Capital Markets.
 Both Guatieri and RBC's Watt said that while that risk had
increased, it was unlikely the central bank would move on rates
in the near term.
 The bank has said its main concerns regarding Canada's
economic recovery are related to soft Canadian productivity,
lackluster U.S. demand, and the strong Canadian dollar, said
 "Well, it takes time for the productivity to change, the
U.S. situation still remains challenging, and the Canadian
dollar is still above parity," he said. "So I don't think the
Bank of Canada is necessarily going to change how it is
approaching monetary policy."
 The two-year bond CA2YT=RR shed 17 Canadian cents to
yield 1.857 percent, while the 10-year bond CA10YT=RR dropped
32 Canadian cents to yield 3.464 percent.
 (Additional reporting by Ka Yan Ng; editing by Rob Wilson)