CANADA FX DEBT-C$ falls; Greek fears undermine strong jobs data
* 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 $1.0446, following the jobs data.
But it soon succumbed to broad U.S. dollar strength and volatile trading in commodity markets as oil prices extended losses following heavy selling on Thursday. [O/R]
CARNEY COMMENTS ON C$
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)
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