4 Min Read
* 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)