CANADA FX DEBT-C$ rises on jobs data, but Greece weighs

Fri May 7, 2010 5:06pm EDT
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 * C$ closes at C$1.0438 to US$, 95.80 U.S. cents
 * Hits high of C$1.0338 to US$, or 96.73 U.S. cents
 * Canada posts historic gain in jobs in April
 * Euro zone debt concerns keep C$ gains in check
 * Bond prices cool off as stability returns
 By Claire Sibonney
 TORONTO, May 7 (Reuters) - Canada's dollar bounced back on
Friday from the three-month low it hit the day before, boosted
by an April jobs report that showed record gains and put more
pressure on the Bank of Canada to raise interest rates soon.
 Persistent fears of a market meltdown over Greece's debt
crisis kept the currency's rise in check, however.
 In a Reuters poll conducted after the employment figures
were released, all of Canada's primary securities dealers,
undaunted by Europe's fiscal crisis, said they expect the Bank
of Canada to start raising interest rates in June as the
economy roars ahead,. [ID:nN07180411]
 All 12 dealers said the central bank would push its key
interest rate 25 basis points higher from the current ultra-low
0.25 percent.
  Currencies usually strengthen as interest rates rise as
higher rates attract capital flows.
 "It's going to take a fair bit more volatility I imagine in
global markets to dissuade the money markets here from the view
that the bank has to tighten rates at some point in the
not-too-distant future," said Shaun Osborne, chief currency
strategist at TD Securities.
 "The economy appears to be firing very much on all
cylinders at the moment...we're still very bullish on the
medium-term outlook for the Canadian dollar and the specific
short-term outlook for the Canadian dollar on the crosses."
 The currency CAD=D4 rose 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 jobs data's release.
 The euro also recovered from a 14-month low against the
U.S. dollar as German lawmakers approved a rescue package for
Greece while the greenback gained versus the yen after U.S.
data showed employment grew at its fastest pace in four years
in April. [FRX/]
 The Canadian currency finished the North American session
at C$1.0438 to the U.S. dollar, or 95.80 U.S. cents, up from
its close on Thursday of C$1.0523 to the U.S. dollar, or 95.03
U.S. cents.
 The currency was down 2.8 percent for the week, the
steepest weekly drop since October.
 Yields on overnight index swaps, which trade based on
expectations for the central bank's key policy rate, jumped on
Friday, showing the market believed credit tightening was more
likely after the data than before. BOCWATCH
 Last month, the Bank of Canada took a first step toward
tightening monetary policy by removing a commitment to keep
rates at the rock-bottom 0.25 percent until the end of June.
 Weighing on Canada's commodity-linked and risk-sensitive
currency was oil, which fell for a fourth day in a row,
tracking a steep fall in North American stock market indexes
due to euro zone worries. [O/R] [.N] [.TO]
 On Thursday, the Canadian dollar hit its lowest level since
early February and had its steepest intraday drop since the
market crash of 2008 on heightened fears that Greece's debt
crisis may spread to other euro zone countries and threaten the
economic recovery.
 As well, Thursday's mayhem across all markets led to
speculation about a massive errant trade.
 "(Parity with the U.S. dollar) has been put back for quite
a while, and this just goes to show how quickly these things
can change," said Carlos Leitao, chief economist at Laurentian
Bank of Canada in Montreal.
 "I think until, and unless, there is some more encouraging
news coming out of Europe, there will be downward pressure on
the Canadian dollar and upward pressure on the U.S. dollar."
 Canadian government bond prices slumped across the curve,
after the strong domestic jobs data hinted at a higher rate
  Bond prices typically fall when interest rates go up as
their low-yielding fixed payments seems less lucrative compared
with rising yields on other investments.
 The move down also tracked U.S. Treasures, which fell as
safe-haven demand for bonds cooled with some stability
returning to Wall Street.
 The two-year government bond CA2YT=RR slipped 5 Canadian
cents to C$99.39 to yield 1.805 percent, while the 10-year bond
CA10YT=RR dropped 15 Canadian cents to C$100.00 to yield
3.500 percent.
 (Reporting by Claire Sibonney; editing by Peter Galloway)