CANADA FX DEBT-C$ falls with commodities on China concerns
* C$ eases to C$1.0350 per US$, or 96.62 U.S. cents
* Bonds mixed, but mostly lower
* Eyes on Canada and U.S. jobs data on Friday
By John McCrank
TORONTO, Jan 7 (Reuters) - The Canadian dollar fell against the U.S. currency on Thursday as commodity prices weakened in response to possible indications from China that it plans to cool its economy to keep a lid on inflation.
A stronger U.S. dollar on the back of weaker than expected data out of the euro zone and on comments by Japan's new finance minister that he wanted a weaker yen also weighed on the Canadian currency. [ID:nN07203903]
The Canadian dollar finished the North American session at C$1.0350 to the U.S. dollar, or 96.62 U.S. cents, down from Wednesday's finish of C$1.0325 to the U.S. dollar, or 96.85 U.S. cents.
The price of oil [O/R], a key Canadian export, slipped to below $83 a barrel after a 10-day rally, on worries that demand would ease if China took more substantial steps to remove excess liquidity from its system in order to keep growth in check. [ID:nTN0720799]
China's central bank surprised markets by raising the interest rate on its three-month bills for the first time since August. Markets took the move as a sign the central bank could be getting ready to use more forceful measures to cool growth and fight inflation. [ID:nTOE60503R]
"This is the first real indication that China's intention is to shift away from gunning the engines to maybe starting to tap the brake -- and we saw commodity prices pull back a little bit and that weighed on the Canadian dollar," said Doug Porter, deputy chief economist at BMO Capital Markets.
The price of gold, another major Canadian export, [GOL/] also softened.
Early in the day, the Canadian dollar shot as high as C$1.0291 to the U.S. dollar, or 97.17 U.S. cents, largely on bullish hopes that U.S. and Canadian jobs data on Friday would further signal the economic revival. [ID:nN0595130]
Porter said the market was looking for a flat number in the U.S. jobs report and slight rise in the Canadian employment number.
"I think the underlying trend is toward recovery here in Canada and it does seem like the job market has turned the corner,"
BONDS MOSTLY LOWER
Canadian bond prices were mixed, but mostly lower, after a top U.S. Federal Reserve policymaker said the central bank should tighten policy sooner, rather than later, to contain long-term inflation pressures. [ID:nN07200067]
"This afternoon we got a press release that had the Fed and others warning the banking system about interest rate risk and a possible rate rising rate environment and that's kept yields (which move in the opposite direction of prices) on the front end a little bit higher and has had modest influence in Canada.
The two-year government bond CA2YT=RR rose 1 Canadian cent to C$99.75 to yield 1.384 percent, while the 10-year bond CA10YT=RR shed 11 Canadian cents to C$100.92 to yield 3.633 percent.
Canadian government bonds notched a mixed performance against U.S. issues, with the two-year yield widening to 38.7 basis points above its U.S. counterpart from 36 basis points in the previous session. (Reporting by John McCrank; editing by Rob Wilson)
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