January 8, 2009 / 10:08 PM / 9 years ago

CANADA FX DEBT-C$ strengthens as data hits greenback

* C$ strengthens as U.S. data hits greenback

* Bonds mixed across the curve ahead of Friday jobs data

By Jennifer Kwan

TORONTO, Jan 8 (Reuters) - The Canadian dollar strengthened versus the U.S. currency on Thursday as the greenback retreated on weak U.S. economic data and investors braced for key monthly employment figures due on Friday.

Bonds were slightly lower at the short end, but mostly higher at the long end of the curve with markets trading cautiously ahead of the jobs data.

The Canadian currency closed at C$1.1785 to the U.S. dollar, or 84.85 U.S. cents, up from C$1.1971 to the U.S. dollar, or 83.54 U.S. cents, on Wednesday.

The biggest factor driving the Canadian currency was the weekly U.S. jobless claims numbers released on Thursday, said Andrew Pyle, investment executive at Scotia McLeod.

The greenback was pressured by the data, which showed unemployment benefit rolls swelled to a 26-year high in the last week of December. Meanwhile, bleak retail sales figures also weighed. [[ID:nN08421512]]

December employment data for both Canada and the United States will be released on Friday.

“The mood towards the prospect of U.S. employment has deteriorated further. We’re on the eve of what will probably be a disastrous employment report tomorrow morning,” Pyle said.

“That’s what’s really putting pressure on the U.S. dollar and helping the Canadian dollar.”

The price of oil CLc1 settled down at $41.70 a barrel on Thursday on economic gloom and a buildup in inventories. [ID:nSP386989], but it was not a major driver behind the Canadian dollar. Canada is a major oil producer and exporter.

BONDS MIXED

Canadian bond prices were mixed with the short end slightly lower and the long end higher as trade was mixed ahead of Friday’s jobs data.

Bond bearishness has been a prevalent theme so far in 2009 due to worries about oversupply.

With a string of weak economic data in recent days, “the reality has set back in that the economy is not going to improve any time soon,” said Sheldon Dong, fixed income analyst at TD Waterhouse Private Investment.

That is why the employment figures will be so closely watched, economists and analysts say.

“I think what it’s going to affect is psychology. A lot of people still expect the economy to bottom out halfway through this year and rebound the second half of the year. If numbers are weaker than expected people might put off those expectations,” Dong said.

In Canada, figures on Thursday showed purchasing activity contracted in December [ID:nN08533259], but the data’s effect on the bond market was negligible, he said.

The two-year bond was down 2 Canadian cents at C$102.98 to yield 1.147 percent, while the 10-year bond rose 45 Canadian cents to C$111.20 to yield 2.879 percent.

The yield spread between the two-year and 10-year bond was 177 basis points, versus 176 at the previous close.

The 30-year bond was up 80 Canadian cents to yield 3.664 percent. In the United States, the 30-year Treasury yielded 3.0479 percent. (Reporting by Jennifer Kwan; editing by Peter Galloway)

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