September 2, 2011 / 8:46 PM / 6 years ago

CANADA FX DEBT-C$ hits one-week low on dismal U.S. jobs data

* C$ ends at C$0.9842 vs US$, or $1.0161

* U.S. payrolls flat in August, well below expectations

* Dovish tone expected from Bank of Canada next week

* Bonds push higher across curve; yields near August lows (Updates with close, adds comment on BoC policy)

By Andrea Hopkins

TORONTO, Sept 2 (Reuters) - The Canadian dollar hit a one-week low on Friday after the U.S. jobs report for August came in far weaker than expected, reigniting fears about a global growth slowdown and sending investors to safe-haven assets.

The U.S. dollar also weakened against key currencies such as the yen and Swiss franc [FRX] after news that U.S. employers hired no new workers last month, against expectations for a 75,000 increase in payrolls. That sent government bond prices higher and pushed stock markets into a global slump. [MKTS/GLOB]

Canada’s dollar fell against all major currencies on concern about the country’s link to the U.S. economy. The United States is by far Canada’s largest trading partner.

The grim employment news will likely keep pressure on the U.S. Federal Reserve to provide more monetary stimulus to aid the economy. The knock-on effect of that means the Bank of Canada will also likely keep rates lower for longer.

“The Bank of Canada has already downgraded its own projection for Canada based on a downgraded U.S. outlook, and I think (the U.S. jobs number) confirms that,” said Michael Gregory, senior economist at BMO Capital Markets.

“That downgraded outlook reduces the sense of urgency to remove monetary stimulus over time and so ... the Bank of Canada statement next week will have a much more dovish tone to it.”

Higher interest rates tend to strengthen currencies by attracting international capital flows.

The Canadian dollar CAD=D4 closed at C$0.9842 to the U.S. dollar, or $1.0161, down from Thursday’s session close of C$0.9755 to the U.S. dollar, or $1.0251.

The Canadian currency slid as low as C$0.9854 against the U.S. dollar, its weakest level since Aug. 26.

Volume thinned in the afternoon after European markets closed and U.S. and Canadian investors headed into a long weekend. U.S. and Canadian markets are closed on Monday for Labor Day, and bond markets closed early on Friday in both New York and Toronto.

The focus for traders next week will be the Bank of Canada’s policy announcement on Wednesday at 9 a.m. (1300 GMT).

A Reuters survey of Canada’s 12 primary securities dealers [nN1E77I1EV] and a separate Reuters poll of 43 forecasters [CA/POLL] unanimously predict the Bank of Canada will keep its overnight target rate at 1 percent.

The major issue is what sort of language the bank will use to describe the future path of interest rates and the state of the economy. Its rate statement is almost certain to be more dovish than its last one on July 19.

Canadian government bond prices pushed higher across the board, alongside U.S. Treasuries, with many investors anticipating further signs of economic weakness. [US/]

The two-year bond CA2YT=RR rose 7 Canadian cents to yield 0.96 percent, while the 10-year bond CA10YT=RR gained 84 Canadian cents to yield 2.303 percent.

Yields across the curve were near many of the multi-decade lows reached last month. (Editing by Jeffrey Hodgson)

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