February 6, 2009 / 4:33 PM / 9 years ago

CANADA FX DEBT-C$ trims losses as U.S. data spurs stimulus hopes

* C$ trims losses after U.S. jobs data released

* Bonds rise as March BoC rate cut seen after poor data

* Canada Jan employment -129K, worst job loss on record

* Unemployment rate rises to 7.2 pct from 6.6 pct in Dec (Updates to late morning, adds quote)

By Ka Yan Ng

TORONTO, Feb 6 (Reuters) - Canada’s dollar trimmed losses versus the U.S. currency on Friday as hopes for further U.S. government stimulus overtook fallout from weaker-than-expected domestic jobs figures.

The Canadian dollar tumbled to a two-week low versus the greenback after a Canadian government report showed the biggest monthly job loss ever recorded. [ID:nN06253705]

But it recovered some of its losses as the worst U.S. unemployment data in decades boosted political pressure for a economic stimulus deal to be passed, lifting U.S. stocks and triggering a price fall in U.S. government debt.

“The Canadian dollar is coming back on external factors. Risk is back on the table,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada, who noted stock markets rallied following the U.S. jobs data.

He said given the rebound in risk appetite, the Canadian dollar ought to have strengthened further, but that the weak domestic jobs data was holding it back.

At 11:15 a.m. (1615 GMT), the Canadian currency was at C$1.2419 to the U.S. dollar, or 80.52 U.S. cents, down from C$1.2310 to the U.S. dollar, or 81.23 U.S. cents, at Thursday’s close.

Meanwhile, Canadian bond prices moved higher across the front of the curve, with spreads to U.S. Treasuries narrowing, following the jobs report. The report increased speculation the Bank of Canada will ease again at its next rate decision in March.

The currency was off the two-week low of C$1.2540, or 79.74 U.S. cents, touched after Statistics Canada said the country suffered its worst job losses in over three decades in January.

The report showed the recession forced employers to cut a record 129,000 workers and pushed the unemployment rate to 7.2 percent from 6.6 percent in December.

“The details are actually worse than the headline print, which often isn’t the case when you get such an astounding headline,” said Derek Holt, an economist with Scotia Capital.

The market had already been on the defensive after comments from Canadian Finance Minister Jim Flaherty on Thursday afternoon, said George Davis, director and chief FX technical analyst with RBC Capital Markets.

Flaherty said the Canadian January jobs report would reveal “regrettable” jobs numbers as he predicted the country’s recession will get much worse.

“The market was starting to brace itself for a more negative outturn,” Davis said. “But I don’t think anybody expected something as severely weak as what we got. Certainly it’s a very worrisome number for the market.”

BONDS RALLY, SPREADS TO U.S. NARROW

Eric Lascelles, chief economics and rates strategist at TD Securities, said general pessimism on the economy was driving the Canadian government debt market, even as the U.S. market was “fighting that trend and looking through” the jobs numbers to possible stimulus action.

The Democratic-led U.S. Senate will try again on Friday to pass a $937 billion stimulus package aimed at boosting the battered economy, while U.S. Treasury Secretary Timothy Geithner plans on Monday to unveil a plan to quell turmoil in the banking system and revive frozen credit markets.

In Canada, the domestic jobs report heightened expectations that Bank of Canada will be compelled to cut rates further from their 50-year low of 1 percent.

The interest-rate sensitive two-year bond rose 18 Canadian cents to C$102.88 to yield 1.134 percent, extending the previous session’s gains, while the 10-year bond rose 30 Canadian cents to C$110.20 to yield 2.986 percent.

The 30-year bond rallied 30 Canadian cents to C$122.45 to yield 3.712 percent. In the United States, the 30-year Treasury yielded 3.712 percent. (Additional reporting by John McCrank; Editing by Jeffrey Hodgson)

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