CANADA FX DEBT-C$ rallies on jobs relief, bonds push higher

Fri Jan 7, 2011 5:03pm EST
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 * C$ ends at at $1.0083, rises 0.3 pct for the week
 * Bonds turn higher as stocks down, US jobs data weighs
 * Canada adds more jobs than expected in December
 * Most Canada dealers see rate hike in first half
 (Adds details)
 By Ka Yan Ng
 TORONTO, Jan 7 (Reuters) - The Canadian dollar finished
stronger against the U.S. currency on Friday, buoyed by a firm
domestic jobs report that helped it sidestep a disappointing
read on the labor market in the United States.
 The currency strengthened early in the session on the back
of better-than-expected Canadian jobs numbers and touched its
highest level in five sessions at C$0.9899 to the U.S. dollar,
or $1.0102.
 But trading was volatile after a report showing U.S.
employers hired fewer workers than expected in December and a
surprisingly large number of people gave up searching for work.
For details see [ID:nN06134458].
 "We should be seeing a lot stronger (U.S.) job numbers at
this point in the recovery and I think that because we're not,
it just solidifies that the (U.S. Federal Reserve) is not only
on hold, but will maintain very loose and alternative policy
for some time to come," said Camilla Sutton, chief currency
strategist at Scotia Capital.
 "That's negative for the U.S. dollar," she said.
 By contrast, Canada 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 [ID:nN07212678]
 The jobs figures will not likely persuade the Bank of
Canada to hike interest rates at its policy-setting decision
later this month, but suggests the central bank may raise rates
sooner than some had expected.
 An earlier rate hike in Canada would widen the interest
rate differential with the United States. Higher interest rates
often attract capital flows into a country, helping its
currency rise.
 The Canadian dollar CAD=D4 finished 0.5 percent higher on
Friday at C$0.9918 to the U.S. dollar, or $1.0083, on Friday,
from the previous session's close at C$0.9969 to the U.S.
dollar, or $1.0031.
 The currency extended its streak of trading above parity
for a ninth straight session, and notched a weekly gain of 0.3
 Sutton said the Canadian dollar's strength on Friday was
particularly impressive given the euro's slump to almost
four-month lows, while a steady oil price and relief from the
domestic jobs figures played a supporting role.
 "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," said Doug Porter, deputy chief economist at BMO Capital
 Most of Canada's primary securities dealers now expect the
central bank to resume raising interest rates in the first half
of this year with economic prospects having brightened in the
past month, a Reuters poll showed. [CA/POLL]
 In a December poll, the majority forecast rate increases in
the second half of this year with the median prediction of a
first hike in July. [ID:nTOR007895]
 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 were able to grind higher
after being stamped down earlier by the forecast-beating
domestic jobs figures.
 But prices soon turned steadily higher, as equity markets
fell after the disappointing U.S. data. Canada's government
bonds underperformed their U.S. counterparts across the curve.
 The interest-rate sensitive two-year bond CA2YT=RR rose 5
Canadian cents to yield 1.716 percent, while the 10-year bond
CA10YT=RR advanced 30 Canadian cents to yield 3.187 percent.
 (Additional reporting by Claire Sibonney; editing by Jeffrey