CANADA FX DEBT-C$ hits 1-wk high on strong US, Canada job gains

Fri Oct 7, 2011 9:53am EDT
 
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 * C$1.0297 to the U.S. dollar, or 97.12 U.S. cents
 * Relief rally seen spurring trade
 * Bond prices lower across the curve
 (Adds details, analyst comment)
 By Andrea Hopkins
 TORONTO, Oct 7 (Reuters) - The Canadian dollar strengthened
to a one-week high against its U.S. counterpart on Friday after
U.S. and Canadian job gains were bigger than expected, buoying
investor appetite for riskier assets.
 North American stock markets opened stronger as the boost
to employment suggested the United States had likely skirted
recession despite the summer slowdown, and commodity-linked
currencies like the Canadian dollar joined the relief rally.
 "Dollar-Canada has been caught up in a fairly pronounced
risk-on sentiment, supported in large part by U.S. payrolls
which were much stronger than the market had feared," said
David Tulk chief Canada macro strategist at TD Securities.
 "It looks as though we are set for a very strong risk-on
day."
 The Canadian dollar CAD=D3 climbed to a one-week high of
C$1.0235 to the U.S. dollar, or 97.70 U.S. cents, shortly after
the strong U.S. payrolls data was released, more than a cent
higher than Thursday's North American session close at C$1.0378
to the U.S. dollar, or 96.36 U.S. cents.
 At 9:25 a.m. (1325 GMT) it settled back to C$1.0297 to the
U.S. dollar, or 97.12 U.S. cents, and Tulk said the currency
would likely stick within the early range for the remainder of
the session.
 "We've already tested the ranges ... and seem to have put
in a tentative floor around C$1.0237, so from that perspective
we could see some consolidation at this point," Tulk said.
 Bond markets have a shortened day on Friday ahead of the
long holiday weekend in Canada and the United States, so
trading is likely to drop off shortly after midday.
 Data showed U.S. employment grew by 103,000 September, and
job gains for the prior months were revised higher, easing
fears of a double-dip U.S. recession. [ID:nN1E7960AR]
 While the U.S. job gains were not enough to reduce the
unemployment rate -- which held steady at 9.1 percent -- Tulk
said markets were ready for a good news day after big losses in
recent weeks, and could wait until next week to refocus on
European debt woes.
  "You get a sense the market is looking to find a certain
amount of optimism and that is what they've focused on today,"
Tulk said. "You still have to reconcile a pretty weak backdrop,
but we'll take the good data where we can find it."
 In Canada, a greater-than-expected 60,900 new jobs helped
slice Canada's unemployment rate to 7.1 percent in September
from 7.3 percent in August, Statistics Canada said on Friday.
 This far exceeded the median forecast of 10,000 new jobs in
a Reuters survey of economists after August's decline of 5,500.
The most optimistic forecasters had predicted 30,000 new
positions in September. [ID:nN1E796020]
 Overnight index swaps, which trade based on expectations
for the Bank of Canada's key policy rate, showed that traders
cut the odds of a rate cut this year or next. Higher interest
rates typically help support currencies by attracting capital
flows. BOCWATCH
 "It weighs against possible rate cuts. The Bank of Canada
is probably more convinced the economy is picking up and
doesn't require further stimulus," Sal Guatieri, senior
economist, BMO Capital Markets.
 "It should be positive for the Canadian dollar today."
 The yield on the two-year Canadian government bond
CA2YT=RR, which is especially sensitive to Bank of Canada
interest rate moves, rose to 0.99 percent from 0.939 percent
just before the release. <0#CABMK=>
 Bond prices were lower across the board. The 10-year bond
CA10YT=RR lost 45 Canadian cents to yield 2.274 percent.
 (Editing by Jeffrey Hodgson)