CANADA FX DEBT-C$ extends gain, bonds down after jobs data

Fri Jan 7, 2011 9:26am EST
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 * C$ steadies near session high at $1.0094
 * Bonds weighed by firm Canada jobs, forecasts on US data
 * Canada adds more jobs than expected in December
 (Adds details)
 TORONTO, Jan 7 (Reuters) - The Canadian dollar stretched
early gains to steady near its session high against the
greenback in volatile trade on Friday after a pair of mixed
North American jobs reports.
 Canada's dollar, which rose on the back of strong domestic
jobs numbers, pared gains on the news that the U.S. economy
created far fewer jobs than expected. But it recovered and
climbed as the U.S. unemployment rate dropped to its lowest in
more than 1-1/2 years. For details see [ID:nN06134458].
 "It's quite volatile right now ... I think the market is
having a bit of a tricky time interpreting some of the
conflicting signals," said David Tulk, senior macro strategist
at TD Securities.
 The Canadian dollar CAD=D4 reached C$0.9899 to the U.S.
dollar, or $1.0102, rising from Thursday's North American
session close at C$0.9969 to the U.S. dollar, or $1.0031. By
9:15 a.m. (1315 GMT) the currency was at C$0.9907 to the U.S.
dollar, or $1.0094.
 The currency was already heading higher after retreating to
C$1.0004 to the U.S. dollar, or 99.60 U.S. cents overnight.
 It firmed as data showed the domestic economy added 22,000
jobs in December compared with 15,200 in November, and more
than the 17,500 forecast. The unemployment rate held steady at
7.6 percent for a second month. For details see
 "Overall it's a supportive report for the Canadian dollar.
Again, it's not a barn-burner report like we saw in the first
half of the year but it's solid and that's a positive surprise
because most Canadian employment reports recently have been on
the soft side of expectations," said Doug Porter, deputy chief
economist at BMO Capital Markets.
 The jobs figures will not likely persuade the Bank of
Canada to hike interest rates this month, but suggests the
central bank may raise rates sooner than some expect.
 Expectations remained firm, as measured by a Reuters
calculation of yields on overnight index swaps, that the Bank
of Canada will likely keep interest rates unchanged at its next
rate decision on Jan. 18. BOCWATCH
 The central bank halted its rate-hiking campaign after
three successive increases last year in part to gauge the
patchy U.S. recovery.
 Canadian government bond prices held lower across the curve
after the two rounds of employment data.
 The forecast-beating domestic jobs figures kept pressure on
the sector, as it suggested further underlying strength in the
economy and the potential for interest rate hikes. But prices
nearly gave back all the declines after the U.S. data. Canada's
government bonds continued to underperform their U.S.
 The interest-rate sensitive two-year bond CA2YT=RR fell 2
Canadian cents to yield 1.754 percent, while the 10-year bond
CA10YT=RR was off 2 Canadian cents to yield 3.226 percent.
  (Reporting by Ka Yan Ng and Claire Sibonney; Editing by James