CANADA FX DEBT-C$ weakens on oil, U.S. economic data

Wed Jan 7, 2009 11:43am EST
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 * C$ weakens as price of oil drops to near $45 a barrel
 * Weak U.S. private sector jobs data spurs concern
 * Bonds flat to lower amid supply concerns
 By Jennifer Kwan
 TORONTO, Jan 7 (Reuters) - The Canadian dollar weakened
against the U.S. currency on Wednesday morning as the price of
oil dropped and bleaker-than-expected U.S. employment data
spurred concerns about a deeper recession.
 Bonds held up on the short end of the curve on ADP private
sector employment data that showed U.S. employers shed 693,000
jobs in December, far more than forecast. [ID:nN07472855] The
longer end of the curve was lower, largely due to persistent
supply concerns.
 At 10:45 a.m. (1545 GMT), the Canadian currency was at
C$1.1900 to the U.S. dollar, or 84.03 U.S. cents, down from
C$1.1828 to the U.S. dollar, or 84.55 U.S. cents, on Tuesday.
 "The driver on the weakness on the C$ would be a dimming
prospect for the U.S. economy," said Michael Gregory, senior
economist at BMO Capital Markets.
 After Wednesday's U.S. figures, investors were bracing for
Friday's release of government employment data December from
both sides of the border.
 "Perhaps a lot of people are revising down their
projections for (U.S.) payrolls on Friday and, as a result, are
probably also marking down their forecasts or hedging their
bets a little bit that the Canadian numbers will also be weaker
than expected," Gregory said.
  The market expects Canada to have shed 22,000 jobs in
December. That would follow a loss of 70,600 jobs in November.
 In recent sessions, the Canadian currency has been boosted
by a rise in oil prices. Earlier on Wednesday, crude climbed
towards $49 a barrel but it then turned negative on economic
concerns and U.S. data showing a big supply build.
 Fluctuations in the oil price often sway the currency as
Canada is a major oil producer and exporter.
 With no major Canadian data on Wednesday the longer end of
the bond market followed U.S. Treasuries, which remained lower
on persistent concerns about swelling supply. [ID:nN07333759]
 After the U.S. employment data on Wednesday, the market
will likely remain cautious for the remainder of the week, said
Paul Ferley, assistant chief economist at Royal Bank of
  The two-year bond was flat at C$103.00 to yield 1.138
percent, while the 10-year bond fell 45 Canadian cents to
C$110.85 to yield 2.920 percent.
 The yield spread between the two-year and 10-year bond was
176 basis points, versus 175 at the previous close.
 The 30-year bond fell C$1.00 to yield 3.686 percent. In the
United States, the 30-year treasury yielded 3.0457 percent.
 (Reporting by Jennifer Kwan; editing by Peter Galloway)