CANADA FX DEBT-C$ ends weaker on jobs drop; Greek worry

Fri Nov 4, 2011 4:33pm EDT
 
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   * C$ at C$1.0167 vs US$ or 98.36 U.S. cents
 * Employment drops 54,000 vs gain of 12,000 forecast
 * Markets price in increased chance of a rate cut
 * Eye on key Greek confidence vote
 * Bond prices rise, outperform U.S. Treasuries
 (Updates to close)
 By Andrea Hopkins
 TORONTO, Nov 4 (Reuters) - The Canadian dollar ended weaker
on Friday after data showed an unexpected plunge in Canadian
employment in October, which boosted the chances of an eventual
Bank of Canada interest rate cut.
 Renewed doubts about the future of Europe's debt bailout
package and the jitters ahead of paliamentary confidence vote
for the Greek government also kept the currency and other risk
assets on the defensive, overshadowing signs of improvement in
Friday's U.S. jobs report for October.
 "The big driver has been that Canadian jobs report ...
(but) in terms of event risk today, we're still waiting for
that Greek confidence vote," said Stewart Hall, senior currency
strategist at Royal Bank of Canada.
 In October, Canadian employers cut almost all the jobs
gained in September as a sluggish economy led to layoffs in the
manufacturing and construction sectors. [ID:nN1E7A3026]
 "It is definitely suggesting the economy is slowing," said
Sheryl King, head of Canadian economics at Bank of
America-Merrill Lynch. "I don't think (the jobs report) is
enough to get the Bank of Canada to cut (rates) at this point,
but one or two more of these and there is a strong possibility
that the bank could start reducing interest rates."
 In the wake of the surprise job losses, the Canadian dollar
CAD=D3 fell more than a cent to a session low of C$1.0229 to
the U.S. dollar, or 97.76 U.S. cents, its weakest point in more
than two weeks, before regaining a little ground.
 It ended the North American session at C$1.0167 to the U.S.
dollar, or 98.36 U.S. cents, below Thursday's North American
close of C$1.0081 to the U.S. dollar, or 99.20 U.S. cents.
 Overnight index swaps, which trade based on expectations
for the central bank's key policy rate, showed that traders
were pricing in a higher chance of a rate cut next year.
BOCWATCH
 However, a Friday poll of primary dealers showed they
expect the Bank of Canada to hold its key policy rate - now at
still stimulative 1 percent - where it is for an extended
period rather than cut, though four of the 12 dealers have
pushed back forecasts for the timing of the central bank's next
move. [CA/POLL]
 Separately, data showed U.S. hiring slowed in October but
the unemployment rate hit a six-month low and job gains in the
previous  two months were stronger than thought, pointing to
some improvement in the still-weak labor market.
[ID:nN1E7A21ET]
 But that news was overshadowed by the ongoing debt drama in
Europe. Greek Prime Minister George Papandreou faced a vote of
confidence late on Friday night, with the fate of the nation's
deal on a euro zone debt bailout, and, perhaps, the global
economy in the balance. [ID:nL6E7M4019]
 RBC's Hall said the Greek vote and euro zone fallout could
drive the Canadian dollar in either direction overnight.
 "While the jobs numbers were important ... Greece has been
steering the boat this week and it is still Greece that has its
hands on the tiller, up until we find out what happens with
this confidence vote," Hall said.
 "We could see (the Canadian dollar) really going either way
- supporting more positive for risk, or conversely changing to
a risk-off if things get messy and there is greater uncertainty
on the back of this confidence vote."
 Canadian government bond prices were higher across the
curve. The two-year bond CA2YT=RR rose 12.5 Canadian cents to
yield 0.936 percent. The 10-year bond CA10YT=RR climbed 41
Canadian cents to yield 2.165 percent.
 (Editing by Jeffrey Hodgson and Peter Galloway)