CANADA FX DEBT-U.S. jobs data lifts C$ off 7-week low

Thu Aug 26, 2010 5:11pm EDT
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 * C$ rises to 94.63  U.S. cents
 * Bond prices mostly higher, 2-year lags
 (Updates to close, adds details commentary)
 By Claire Sibonney
 TORONTO, Aug 26 (Reuters) - The Canadian dollar recovered a
bit on Thursday from a seven-week low against the U.S.
currency, supported by a modest improvement in U.S. employment
data, which pumped up commodities and commodity-linked
 New U.S. jobless claims fell more than expected last week
but were still too high to signal a shift in the U.S. labor
market, the weakness of which is constraining economic growth.
 Crude oil futures rose for a second day to just below $74 a
barrel but persistent concerns about the economy sent investors
searching for the shelter of safer assets, hurting stocks and
helping government bonds. [O/R] [.N]
 The concerns also limited gains for the Canadian dollar.
 "We had a mildly positive initial jobless report,"  said
Doug Porter, deputy chief economist at BMO Capital Markets.
 "(That) initially was a bit of a problem for the bond
market, but I think the underlying concerns about the U.S.
outlook are moving to the fore, leading to renewed gains in
bonds, and has taken away some of the strength we saw in the
Canadian dollar earlier in the day."
 Also weighing on sentiment, Canadian Finance Minister Jim
Flaherty, speaking in Ireland, said the struggling U.S. economy
is a big concern for Canada, adding that Canadian economic
growth likely eased in the second quarter from the first three
months of the year. [ID:nLDE67P1QH]
 A rash of disappointing data in Canada and the United
States in recent weeks has deflated interest rate hike
expectations and also put the Canadian dollar under pressure.
 Markets are pricing in just shy of a 30 percent chance that
the Bank of Canada will raise rates on Sept. 8, as measured by
a Reuters calculation of yields on overnight index swaps on
Thursday. BOCWATCH
 "The market has now taken away a majority consensus on a
rate hike," he said. Second-quarter gross domestic product data
on Tuesday "will likely seal its fate one way or another," said
Jack Spitz, managing director of foreign exchange at National
Bank Financial.
 The currency CAD=D4 ended the North American session at
C$1.0567 to the U.S. dollar, or 94.63 U.S. cents, up from
C$1.0608 to the U.S. dollar, or 94.27 U.S. cents, at
Wednesday's close.
 Over the past three weeks, the currency has been driven
from a possible path to parity with the U.S. dollar down to
C$1.0669 to the U.S. dollar .
 The Canadian dollar's retreat could be a factor in the
upcoming interest rate decision.
 "If the currency were trading at parity there would be more
concern with respect to the implications of a move in the
Canadian dollar on a rate hike. But with the currency trading
at C$1.06 those same concerns are somewhat alleviated," Spitz
 Bond prices mostly edged higher due to renewed fears of a
double-dip recession, but some shorter dated issues lagged
slightly, signaling investors may have felt the impressive
rally of late was overdone.
 "Two weeks ago the two-year yield was 50 basis points
higher, that's a huge move in a short period of time," said
BMO's Porter.
 "Given that the Bank of Canada hasn't signaled anything in
those two weeks, to have such a ferocious rally is quite
remarkable and it's not surprising that we're getting just a
little bit of a correction here."
 The two-year bond CA2YT=RR was down 4 Canadian cents to
yield 1.241 percent, while the 10-year bond CA10YT=RR rose 25
Canadian cents to yield 2.804 percent.
 (Reporting by Claire Sibonney; editing by Peter Galloway)