CANADA FX DEBT-C$ hits 2-week high on "stunning" jobs report

Fri Jul 9, 2010 4:50pm EDT
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 * C$ ends at 96.74 U.S. cents; up 2.8 pct for week
 * Canada adds 93,200 jobs in June
 * Bond prices fall on rising rate expectations
 (Updates to close, adds quote)
 By Jennifer Kwan
 TORONTO, July 9 (Reuters) - Canada's dollar soared and
yields on its bond climbed on Friday on news the economy
created six times more jobs than forecast in June, pressuring
the Bank of Canada to raise interest rates again this month.
 The Canadian dollar CAD=D4 jumped more than a penny to
touch a session high of C$1.0296 to the U.S. dollar, or 97.13
U.S. cents, its strongest level since June 23.
 Canadian employment surged by 93,200 in June, far exceeding
market predictions of a 15,000 gain and contradicting other
recent data suggesting the country's galloping economic
recovery was slowing. [ID:nN09261751]
 "Today's job report was actually quite stunning. It's not
just the individual number it's the rate of growth that we've
had for the last several months," said Firas Askari, head of
foreign exchange trading at BMO Capital Markets.
 "This has sort of changed things for (Bank of Canada
Governor Mark) Carney in the sense that there's no doubt about
the strength of Canadian jobs growth, which is obviously a big
fundamental of the Canadian economy."
 The Canadian dollar finished at C$1.0337 to the U.S.
dollar, or 96.74 U.S. cents, up from Thursday's finish at
C$1.0440 to the U.S. dollar, or 95.79 U.S. cents. The currency
gained 2.8 percent for the week, its biggest weekly gain in a
 The employment report represented the final major data
ahead of the July 20 Bank of Canada rate decision.
 In a Reuters poll conducted following the jobs report all
of Canada's primary securities dealers predicted that the Bank
of Canada would raise interest rates by 25 basis points this
month and again in September. But some forecast a pause later
this year on uncertainty about the pace of global economic
growth. [CA/POLL]
 Analysts said given global economic uncertainty, Carney is
likely to keep his options open when he speaks following the
July 20 decision.
 "He still has justification for not even going and he has
justification for tightening so he really is in a catbird
seat," said BMO's Askari.
"I guarantee you he is the envy of every other central bank
governor in the G7 because the Canadian economy is
outperforming just about everybody else."
 Yields on overnight index swaps, which trade based on
expectations for the Bank of Canada's key policy rate, showed
the market sees an 84 percent chance of a July rate hike,
compared to about 61 percent on Thursday. BOCWATCH
 Still, investors will keep a close eye on two key surveys
conducted by the central bank that will be release on Monday.
 "The last piece of the puzzle before the BoC decides will
be Monday's Business Outlook and Senior Loan Officer surveys,"
said David Watt, senior fixed income and currency strategist at
RBC Capital Markets.
 With a near-term rate hike largely priced in, Canadian bond
prices retreated. The two-year government bond CA2YT=RR fell
17 Canadian cents to yield 1.714 percent, while the 10-year
bond CA10YT=RR sank 35 Canadian cents to yield 3.238
 Canadian bonds underperformed U.S. Treasuries, with the
Canadian 2-year government bond yield 108 basis points above
its U.S. counterpart, up from about 101 in the previous
 (Editing by Jeffrey Hodgson)