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TORONTO (Reuters) - The Canadian dollar skidded nearly a cent versus the U.S. dollar on Friday after a weak domestic jobs report all but cemented expectations that the Bank of Canada will leave interest rates steady next week.
Domestic bond prices rose right across the curve as the jobs data suggested the Canadian economy could be in for some tough times given the numerous headwinds it faces.
At 8:35 a.m., the Canadian unit was at C$1.0152 to the U.S. dollar, or 98.50 U.S. cents, down from C$1.0091 to the U.S. dollar, or 99.10 U.S. cents, at Thursday's close.
Earlier, the currency fell to C$1.0179 to the U.S. dollar, or 98.24 U.S. cents, as the latest domestic jobs report showed the economy shed jobs for the first time since December while the unemployment rate rose to its highest in over a year.
"It might be an indication that the economic slowdown is starting to bite a little bit more broadly across Canada here and probably means, at least for now, that the Bank of Canada is probably going to remain on hold," said Shaun Osborne, chief currency strategist at TD Securities.
"We had seen expectations in the market that we would see a decent number and the market was probably long Canadian dollars heading into these figures and got caught by a report that was quite bit weaker than expected."
According to the data the economy lost 5,000 jobs in June, which not only missed expectations for a gain of 10,000 jobs but also marked the biggest monthly decline since August 2006.
Canada's unemployment rate rose to its highest in over a year in June, moving to 6.2 percent from 6.1 percent, which has confirmed a long-awaited slowdown in the labor market after it consistently surprised markets with its strength for most of 2007 and early 2008.
The report backs the view that Bank of Canada will leave its key overnight rate steady at 3.00 percent when it makes its scheduled rate announcement on July 15.
But analysts will still focus on the statement that accompanies the rate announcement to see if the emphasis will remain on the risk of accelerating inflation.
Bond prices were all higher after the domestic jobs report suggested domestic interest rates are not going to be moving higher anytime soon and that the economy has finally started to slow down. That helped trigger a rush into more secure assets like government debt.
"We've gone from gangbusters job growth from last year and the start of this year to weaker growth and now and outright decline in the summer," said Sal Guatieri, senior economist at BMO Capital Markets.
"It's going to be a really tough period for Canada's economy and labor market in the second half of this year given the numerous headwinds currently facing our economy."
Guatieri said the pullback in construction jobs, which had been a tailwind for several years for jobs growth could now be a headwind along with job losses in the tourism industry since a weaker greenback has made Canada less attractive a place to visit for U.S. tourists.
The two-year bond rose 10 Canadian cents to C$101.18 to yield 3.097 percent. The 10-year bond gained 30 Canadian cents to C$104.45 to yield 3.707 percent.
The yield spread between the two-year and 10-year bond was 61.0 basis points, up from 59.4 at the previous close.
The 30-year bond was up 23 Canadian cents at C$116.13 for a yield of 4.048 percent. In the United States, the 30-year treasury yielded 4.4224 percent.
The three-month when-issued T-bill yielded 2.33 percent, down from 2.39 percent at the previous close.
Editing by Frank McGurty