CANADA FX DEBT-C$ gets lift from firm data, equity rally
* C$ ends at 95.79 U.S. cents
* All eyes on Friday's Canadian jobs data
* Bonds mostly lower across curve (Updates to close, adds quotes)
By Jennifer Kwan
TORONTO, July 8 (Reuters) - The Canadian dollar ended higher against the greenback on Thursday as investors sought riskier assets after U.S. and Australian economic data fueled optimism about the pace of recovery.
U.S. data on Thursday showed a sharp drop in U.S. weekly jobless claims, easing concerns about the economic health of Canada's largest export market, while an improvement in Australia's employment market was also supportive. [ID:nN08209499] [ID:nSGE66702T]
The Canadian dollar CAD=D4 reach a session high of C$1.0379 to the U.S. dollar, or 96.35 U.S. cents, its strongest level since June 29.
"The U.S. data was, for the most part, reasonably positive," said Mark Chandler, head of Canadian fixed income and currency strategy.
But Chandler emphasized a key catalyst was "sentiment that we may have been overdone in terms of risk aversion over the last several weeks."
The Canadian dollar finished at C$1.0440 to the U.S. dollar, or 95.79 U.S. cents, up from Wednesday's finish at C$1.0478 to the U.S. dollar, or 95.44 U.S. cents.
The Canadian dollar also got a boost after the International Monetary Fund upgraded its 2010 global growth forecast.
As well, world stocks, another proxy of risk appetite, rose on optimism over European bank stress tests, while North American equities also capped the session with gains. [MKTS/GLOB] [.N] [.TO]
Higher oil, a key Canadian export, also supported the currency's move higher as prices topped $75 a barrel on the U.S. data and a drawdown in U.S. crude inventories.[O/R]
Jack Spitz, managing director of foreign exchange at National Bank Financial, said a key technical level now being watched by traders is C$1.04 to the U.S. dollar.
"A close below C$1.04 technically sets the market up for a deeper correction down to better support at C$1.0335," he said.
On the data front, the headline event is Friday's Canadian employment report, which is expected to show 15,000 jobs were added in the month with the unemployment rate staying steady at 8.1 percent. [ID:nN02188375] [ECI/CA]
"The market is going to be looking for any kind of disconnect between any double-dip sentiment in the States and where the economics for the near term go in Canada," said Spitz.
With "risk-on," Canadian government bond prices were mostly lower as investors flocked to assets like stocks. The short end was largely flat ahead of the domestic jobs data, but was building in expectations of a Bank of Canada rate hike on July 20, said RBC's Chandler.
"You've had maybe a marginally higher probability of the bank moving creeping into the front end," he said.
Yields on overnight index swaps, which trade based on expectations for the Bank of Canada's key policy rate, showed the market sees a 61 percent chance of a July rate hike. BOCWATCH
The two-year government bond CA2YT=RR slipped 1 Canadian cents to yield 1.643 percent, while the 10-year bond CA10YT=RR was down 20 Canadian cents to yield 3.197 percent.
Canadian bonds mostly outperformed U.S. Treasuries, with the Canadian 2-year government bond 101 basis points above its U.S. counterpart, down from 102 on Wednesday. (Editing by Jeffrey Hodgson)
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