CANADA FX DEBT-C$ falls; Greek fears undermine strong jobs data

Fri May 6, 2011 3:26pm EDT
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 * C$ falls to C$0.9692 vs US$, or $1.0318
 * C$ tracks weakness in euro after Greece reports
 * Canada added 58,300 jobs; more than twice expected
 * Bond prices soften; Canada underperforms Treasuries
 (Updates to afternoon, adds analyst comment, recasts)
 By Claire Sibonney
 TORONTO, May 6 (Reuters) - Canada's dollar turned lower
against the U.S. currency on Friday, tracking a sliding euro
after a report, later denied, suggested Greece was considering
leaving the euro zone.
 The European news wiped out solid gains made earlier in the
session, triggered by unexpectedly strong Canadian and U.S.
jobs data.
 The euro fell to its lowest in more than two weeks and
headed for its worst week against the greenback since January,
dragging other risk-related currencies such as the Canadian
dollar along with it. [FRX/]
 Spiegel Online reported euro zone finance ministers were
meeting in Luxembourg on Friday to discuss Greece, including
the issue of its possible exit from the currency bloc. Greece,
through its finance ministry, denied it had raised the
possibility of leaving the euro zone. [ID:nATH006056]
 "Euro has had a tough week as it is," said Shane Enright,
executive director of foreign exchange sales at CIBC, referring
to less hawkish than expected comments from European Central
Bank President Jean-Claude Trichet on Thursday.
 "These comments have only served to further add to the
pressure despite the denial from Greek officials. That's added
to the risk-off tone that we've seen earlier in the week and
probably nullified to a degree what were very good North
American job numbers."
 Both Canada and the United States created far more jobs
than expected in April. Canada's data set the stage for solid
domestic second-quarter growth and interest rate hikes later
this year. [ID:nN06160819] [ID:nOAT004799]
 The Canadian dollar rallied as high as C$0.9573 to the U.S.
dollar, or $1.0446, following the jobs data.
 But it soon succumbed to broad U.S. dollar strength and
volatile trading in commodity markets as oil prices extended
losses following heavy selling on Thursday. [O/R]
 Also somewhat weighing, said Enright, was a reminder from
Bank of Canada Governor Mark Carney that a robust Canadian
dollar has sapped some of the country's manufacturing
competitiveness. [ID:nWAT015097]
 At 3:00 p.m. (1900 GMT), the Canadian dollar CAD=D4 was
at C$0.9692 to the U.S. dollar, or $1.0318, up from Thursday's
finish at C$0.9682.
 "We still favor long CAD positions, particularly as we head
into the May 31 Bank of Canada meeting where we think they're
going to start laying the ground for hikes beginning in July,"
said Elsa Lignos, G10 currency strategist at RBC Capital
Markets in London.
 Benefiting the Canadian dollar, said Lignos, was its play
as a North American currency, benefiting from employment
strength on both sides of the border.
 Overnight index swaps, which trade based on expectations
for the key central bank rate, showed investors slightly
increasing bets on rate hikes throughout the rest of 2011 after
the Canadian jobs data was published. BOCWATCH
 Canadian bond prices cut some of their early losses,
mimicking a reversal in U.S. Treasuries as risk aversion seeped
back into the market. [US/]
 The two-year Canadian government bond CA2YT=RR was off 1
Canadian cent to yield 1.663 percent, while the 10-year bond
CA2YT=RR was down 18 Canadian cents to yield 3.213 percent.
 Canadian bonds mostly underperformed Treasuries, especially
at the short end of the curve. Canada's two-year bond yield was
111 basis points above its U.S. counterpart, compared with 108
basis points on Friday.
 (Editing by Jeffrey Hodgson)