CANADA FX DEBT-C$ falls after disappointing U.S. jobs data

Fri Jul 8, 2011 10:57am EDT
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 * C$ weakens to C$0.9631 to U.S. dollar, or $1.0383
 * Fell to C$0.9665 after U.S. non-farm payrolls data
 * Falling oil, copper and commodities weigh
 * Bonds higher across the curve
 By Trish Nixon
 TORONTO, July 8 (Reuters) - The Canadian dollar dropped
against it's U.S. counterpart on Friday after disappointing
U.S. employment data hit investor sentiment and overshadowed
strong Canadian figures released earlier in the day.
 The U.S. jobs data showed employment growth there ground to
a halt in June, dousing hopes that its economy, the destination
for most Canadian exports, would regain momentum in the second
half of the year. [ID:nOAT004829]
 "Not only was the headline disappointing, the jobless rate
rose, but also if you look at the labor income growth, up less
than two percent, that's not particularly good for consumption
or for the U.S. economy," said Peter Buchanan, senior economist
at CIBC World Markets.
 The Canadian dollar had strengthened earlier in the session
after domestic data showed that Canada's economy generated a
surprising 28,400 jobs in June, compared with the 15,000
expected by markets. [ID:nN1E767019]
 But it immediately dropped to a session low, falling as far
as C$0.9665 to the U.S. dollar, or $1.035, following the
release of the U.S. data.
 At 10.00 a.m. (14:00 GMT) the Canadian dollar CAD=D4 was
at C$0.9631 to the U.S. dollar, or $1.0383, down from
Thursday's finish at C$0.9587.
 The U.S. economy actually created fewer jobs than its
Canadian counterpart in June despite being many times its
 The uncertain external environment, combined with the
absence of domestic wage pressures, could be more meaningful to
the Bank of Canada than employment gains when it plots the path
for interest rates, analysts said.
 The central bank could opt to postpone rate hikes in the
belief the economy can continue to expand without prices
getting out of hand. Higher interest rates tend to help
currencies by attracting international capital flows.
 Yields on overnight index swaps, which trade based on
expectations for the central bank policy rate, continued to
reflect almost zero chance of a rate move on July 19.
 Rate hike expectations for September, October and December
briefly rose after the Canadian data but fell again after the
U.S. release. BOCWATCH
 Still, Buchanan warned that it's dangerous to look too much
at one figure.
 "We were looking certainly for a rate increase in October.
I don't think this prevents them from moving at that time, but
we'll have to see what the data from the next few months
shows," Buchanan said.
 He added that the central bank would certainly be watching
the impact of the U.S. data on resource prices.
 Canada's economy is heavily dependent on raw materials, and
soft commodity prices generally pressure the currency.
 Prices of oil, copper and most other commodities were lower
after the U.S. report. [O/R] [MET/L]
 Canadian bond prices were higher across the curve, as
investors moved back toward safe-haven assets on concerns about
the weak U.S. economy.
 The Canadian government two-year bond CA2YT=RR was up 11
Canadian cents to yield 1.523 percent, while the 10-year bond
CA10YT=RR rose 55 Canadian cents to yield 2.993 percent.
 Canadian bonds mostly underperformed U.S. Treasuries, with
the Canadian 10-year yield 4.6 basis points below its U.S.
counterpart, compared with 8.4 basis points lower yesterday.
 (Editing by Jeffrey Hodgson)