CANADA FX DEBT-C$ ends stronger after Japan quake volatility
* C$ ends at C$0.9711 vs US$, or $1.0298
* Hits weakest point since Feb 28 after soft jobs data
* Recovers as stocks, gold rise; oil cuts losses
* Bond prices gain across curve, outperform U.S. (Adds C$ closing level, weekly move)
By Claire Sibonney
TORONTO, March 11 (Reuters) - Canada's dollar closed stronger after a volatile session on Friday, rebounding alongside North American equities and some commodity prices, after an early drop triggered by Japan's devastating earthquake.
The currency at one point hit its weakest level in nearly two weeks. It slid after data showed domestic job creation slowed more than expected in February and bottomed after news U.S. consumer sentiment fell to a five-month low. [ID:nN11228750] [ID:nN11275400]
But by the afternoon the currency had recovered along with U.S. and Canadian stock indexes as investors tried to weigh the quake's economic impact. Oil and copper both cut losses, while safe-haven gold turned higher.
"The U.S. dollar, particularly, has weakened off dramatically in the last little bit so (it's) a real turnaround from where we sat this morning, and I would say a surprising turnaround ... it's an odd reaction," said Camilla Sutton, chief currency strategist at Scotia Capital.
"Generally, oil prices might have fallen off their highs but they're still extremely elevated and there is still ongoing evidence that the (European Central Bank) is going to hike rates."
The currency CAD=D4 fell as low as C$0.9803 to the U.S. dollar, or $1.0201, its weakest level since Feb. 28. It was already softer heading into the jobs data as the deadly 8.9 magnitude earthquake that hit Japan darkened an already bleak mood caused by weak economic data and unrest North Africa and the Middle East.
The Canadian dollar ended the session at C$0.9711, or $1.0298, compared with Thursday's close of C$0.9756 to the U.S. dollar, or $1.0250. For the week it was almost unchanged.
"We're really seeing commodity currencies generally very strong," Sutton said. "This morning when we came in there was so much uncertainty with headlines and video of the Japanese earthquake really flooding the market's attention, and since then, this afternoon, we've just had a refocusing."
The currency also benefited from stronger U.S. retail sales, which had their largest gain in four months in February. [ID:nN11250325]
"That highlights that the U.S. consumer is spending and that in turn what's good for the U.S. is good for Canada by default. However the move we've seen in Canada is stronger than just that," Sutton said.
The risk for the Canadian dollar is still to the downside over the next week, Sutton said, with a U.S. Federal Open Market Committee meeting on Tuesday. The FOMC may highlight stronger U.S. economic data, which would likely give more fuel to the greenback.
She said the Canadian currency risks testing the 50-day moving average of C$0.9875. On the upside, higher oil prices could see the Canadian dollar back around this week's high. The currency hit C$0.9667 on March 9, its strongest level since November 2007.
BOND PRICES MIXED
With the lackluster domestic jobs data firming expectations that the Bank of Canada has room to breathe before it next raises interest rates, the rate-sensitive two-year Canadian government bond CA2YT=RR rose 6 Canadian cents to yield 1.747 percent, while the 10-year bond CA10YT=RR retreated 8 Canadian cents to yield 3.278 percent.
Canadian bonds outperformed their U.S. counterparts across the curve as the Japanese quake prompted speculation that insurers could sell U.S. dollar assets, including Treasuries, to raise cash. (With additional reporting by Ka Yan Ng; additional writing by Jeffrey Hodgson; editing by Peter Galloway)
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