Canada dollar flat as US$ offsets data, bonds sag

Fri Jul 11, 2008 4:42pm EDT
 
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 * Canada's currency finishes flat as US$ offsets data
 * Economy unexpectedly sheds 5,000 jobs in June
 * Bond prices fall with U.S. market on financial woes
 By John McCrank
 TORONTO, July 11 (Reuters) - The Canadian dollar ended
little changed  on Friday as it benefited from U.S. dollar
weakness, which offset an early decline after an anemic
domestic jobs report.
 Canadian bond prices fell as concerns about a potential
watering-down of U.S. government debt filtered into Canada.
 The Canadian dollar closed at C$1.0094 to the U.S. dollar,
or 99.07 U.S. cents, slightly down from C$1.0091 to the U.S.
dollar, or 99.10 U.S. cents, at Thursday's close. For the week,
it ended up 1.1 percent.
 The currency fell as low as C$1.0179 to the U.S. dollar
after the data showed Canada shed jobs for the first time since
December and the unemployment rate rose to its highest in over
a year. See [ID:nN11355635]
 The economy lost 5,000 jobs in June, confounding market
expectations of a gain of 10,000 jobs. It was the biggest
monthly decline since August 2006.
 The unemployment rate rose to 6.2 percent from 6.1 percent,
its highest in over a year.
 By midmorning, the currency had recouped its losses versus
the greenback, which sold off heavily over concerns coming from
the U.S. mortgage sector.
 Looking forward, the main economic event in Canada is the
Bank of Canada's interest rate announcement on Tuesday.
 A Reuters poll taken after the soft jobs report showed 10
of 12 of Canada's primary securities dealers see the bank
leaving its key lending rate steady at 3 percent, while the
other two were unavailable for comment. See [ID:nN11384966]
 So, barring an unexpected rate move, the focus of the
market will be on the statement accompanying the announcement.
 "I certainly don't think you'll see anything more hawkish
than what you saw five weeks ago (at the central bank's last
scheduled policy announcement), just given the broader economic
malaise, but at the same time inflationary pressures certainly
aren't diminishing," said Shane Enright, currency strategist at
CIBC World Markets.
 BOND PRICES FALL
 Bond prices climbed across the board after the domestic
jobs report, but then followed the U.S. market lower on fears
two of the biggest U.S. mortgage finance companies could face a
takeover by the U.S. government.
 "That massive (U.S.) selloff is out of concern that Freddie
Mac FRE.N and Fannie Mae FNM.N could ultimately be truly
nationalized and brought under the wings of the U.S. government
and if that were to happen, you'd end up with a substantially
larger U.S. debt because these guys have something like $5
trillion in liabilities," said Eric Lascelles, chief economics
and rates strategist at TD Securities.
 "So, there are a lot of concerns as to the quality of U.S.
treasuries and that's just bleeding through to Canada."
 The two-year bond fell 5 Canadian cents to C$101.03 to
yield 3.179 percent. The 10-year bond slid 25 Canadian cents to
C$103.90 to yield 3.773 percent.
 The yield spread between the two-year and 10-year bond was
59.4, unchanged from the previous close.
 The 30-year dropped 40 Canadian cents to C$115.50 for a
yield of 4.081 percent. In the United States, the 30-year
treasury yielded 4.530 percent.
 The three-month when-issued T-bill yielded 2.34 percent,
down from 2.39 percent at the previous close.
 (Editing by Frank McGurty)