CANADA FX DEBT-C$ rallies after record Canada jobs data

Fri May 7, 2010 8:08am EDT
 
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 * C$ touches high of C$1.0338, or 96.73 U.S. cents
 * Canada posts historic gain in jobs in April
 * Euro zone debt concerns keep C$ gains in check
 * Rate rise expectations push bonds lower
 By Jennifer Kwan
 TORONTO, May 7 (Reuters) - Canada's dollar shot up one U.S.
cent on Friday after a stronger-than-expected jobs report
showed a record number of Canadians returned to work in April,
adding pressure on the Bank of Canada to raise rates soon.
  The currency CAD=D4 firmed to a session high of C$1.0338
to the U.S. dollar, or 96.73 U.S. cents, from about C$1.0448,
or 95.71 U.S. cents just before the data's release.
 Statistics Canada on Friday said the economy added 108,700
jobs in the month, the highest since Statscan began tracking
the data in 1976 and exceeding even the most upbeat estimate in
a Reuters poll which yielded a median forecast of 25,000 new
jobs. [ID:nN0793308]
 "In more normal times this would be a huge lift for the
Canadian dollar. We've seen a bit of a lift for the Canadian
dollar, but obviously we're not normal times," said Craig
Wright, chief economist at Royal Bank of Canada.
 "People are still looking to developments in Europe to take
direction and it's the old risk-on and risk-off trade. If
people become more comfortable with risk the environment for
another run at parity for Canada is there."
 At 7:39 a.m. (1139 GMT), the Canadian currency was at
C$1.0380 to the U.S. dollar, or 96.34 U.S. cents, higher than
its close on Thursday of C$1.0523 to the U.S. dollar, or 95.03
U.S. cents.
 Yields on overnight index swaps, which trade based on
expectations for the central bank's key policy rate, jumped on
Friday, showing the market saw tightening as more likely than
before the data. BOCWATCH.
 Last month, the Bank of Canada took a first step toward
tightening monetary policy by removing a commitment to keep
rates at a rock-bottom 0.25 percent until the end of June. Most
market players now expect it to raise rates to 0.50 percent on
June 1.
 Supporting the currency's move higher on Friday morning was
firmer oil prices, which edged toward $78 a barrel, and U.S.
stock index futures, which signaled a rebound after a steep
fall in the previous session. [O/R] [.N]
 Market watchers will now eye April's U.S. non-farm payrolls
data, with economists polled by Reuters expecting that
employers added 200,000 jobs last month after a 162,000
increase in March. The data is due at 8:30 a.m. (1230 GMT).
 The currency's move higher comes a day after Canada's
dollar plunged on Thursday, hitting a near 3-month low against
the greenback in its steepest intraday drop since the market
crash of 2008, on fears Greece's debt crisis may spread to
other euro zone countries and threaten the economic recovery.
 BOND PRICES LOWER
 Canadian government bond prices slumped across the curve,
as the strong domestic jobs data hinted at the higher rate
environment.
 The two-year government bond CA2YT=RR fell 21 Canadian
cents to C$99.23 to yield 1.883 percent, while the 10-year bond
CA10YT=RR dropped 38 Canadian cents to C$99.77 to yield 3.528
percent.
 (Reporting by Jennifer Kwan; Editing by Jeffrey Hodgson&
Theodore d'Afflisio)