CANADA FX DEBT-C$ falls, bonds rise after jobs data
* C$ slips to session low, recovers to 97.69 U.S. cents
* Bond prices rise as rate hike expectations ease
* Canada economy loses 9,300 jobs, first jobs loss of 2010
* U.S. July payrolls fall, jobless rate holds steady (Updates with details)
By Ka Yan Ng
TORONTO, Aug 6 (Reuters) - The Canadian dollar tumbled against the U.S. currency on Friday, and government bonds climbed, as weak Canadian and U.S. job reports for July suggested a softening economic recovery.
The currency fell after a Canadian employment report showed the economy posted its first monthly job losses of the year, then extended the decline after data showed U.S. employment fell for a second straight month.
The data knocked the Canadian currency CAD=D4 as low as C$1.0260 to the U.S. dollar, or 97.47 U.S. cents. By 9:35 a.m. (1325 GMT), it had trimmed the decline to C$1.0236 to the U.S. dollar, or 97.69 U.S. cents, down from Thursday's finish at C$1.0166 to the U.S. dollar, or 98.37 U.S. cents.
"What helped the Canadian dollar earlier this year is now weighing on the Canadian dollar. We're underperforming our commodity and cyclically sensitive peers," said David Watt, senior fixed income and currency strategist at RBC Capital Markets.
He said increased uncertainty about U.S. economic recovery, highlighted by the recent rough patch of U.S. data, has spilled over to the outlook for the Canadian dollar. Earlier in the year, the Canadian dollar benefited from a focus on the strength of the U.S. recovery relative to other major economies, Watt added.
Statistics Canada said the economy lost 9,300 jobs in July, while the unemployment rate unexpectedly rose to 8 percent from 7.9 percent. Analysts in a Reuters poll had predicted an increase of 15,000 jobs after a strong gain of 93,200 in June. [ID:nN06197942]
U.S. non-farm payrolls fell 131,000, against expectations for a 65,000 decline, while the unemployment rate was unchanged at 9.5 percent in July for a second straight month, just below market expectations for a rise to 9.6 percent. [ID:nN05598486]
CANADA RATE EXPECTATIONS EASE
Canadian bond prices were firmer across the curve after the domestic jobs data, which added to recent evidence that country's recovery from the recession is starting to slow and could keep the Bank of Canada on a path of gradual rate increases.
Analysts said the Canadian figures should also keep the Bank of Canada on track for a quarter-point interest rate rise on Sept. 8, to follow two hikes of the same size in the past two months.
But market pricing, as measured by yields on overnight index swaps, fell to an under 60 percent chance of a rate rise, compared with about 68 percent before the Canadian jobs report. BOCWATCH
"I think the Bank of Canada will realize that the three-, six-month moving average is still quite healthy. It's not one single report that will put doubt in Governor (Mark) Carney's mind," said Sebastien Lavoie, assistant chief economist at Laurentian Bank Securities.
"It's still easy for the bank to hike on Sept. 8 given the level of the overnight rate is so low."
The U.S. jobs data will likely keep debate alive on whether more easing is needed. The next U.S. Federal Reserve policy-setting meeting is on Tuesday, and Chairman Ben Bernanke has said the U.S. central bank could take steps to further ease monetary policy if the recovery were to falter.
The two-year bond CA2YT=RR was up 10 Canadian cents to yield 1.464 percent, while the 10-year bond CA10YT=RR gained 25 Canadian cents to yield 3.095 percent. (Additional reporting by John McCrank; Editing by Theodore d'Afflisio and Peter Galloway)
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