CANADA FX DEBT-C$ falls as job market stalls, wildfire weakens outlook

Fri May 6, 2016 5:34pm EDT
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* Canadian dollar at C$1.2919, or 77.41 U.S. cents
    * Loonie touches weakest level since April 18 of C$1.2952
    * Bond prices mixed across the maturity curve

 (Adds details, quotes, updates prices)
    By Fergal Smith
    TORONTO, May 6 (Reuters) - The Canadian dollar weakened to a
two-week low against its U.S. counterpart on Friday as Canada's
labor market stalled, while a raging wildfire in Alberta weighed
on the country's economic outlook.
    Canada lost 2,100 jobs in April as the oil-rich province of
Alberta shed still more jobs in its natural resources sector.
Economists had forecast that the labor force would be unchanged
after a strong gain in March. 
    "The details were on the weak side," said Doug Porter, chief
economist at BMO Capital Markets, including a another big
decline in manufacturing employment.
    Economists say production cuts in Alberta's oil sands due to
a raging wildfire may bring Canadian economic growth to a
standstill in the second quarter, leaving the central bank on
the sidelines and weighing on the Canadian dollar. 
    Both RBC and Bank of America-Merrill Lynch slashed their
second-quarter growth forecasts on Friday to 0.5 percent and 0.6
percent, respectively. That will mark a substantial slowdown
from the near 3 percent that is expected for the first quarter.
    Although less production should boost oil prices, which will
lift the Canadian dollar, that will likely be offset by the
weaker economic fundamentals, said Scott Smith, senior market
analyst at Cambridge Global Payments.
    The Canadian dollar ended the North American
trading session at C$1.2919 to the greenback, or 77.41 U.S.
cents, weaker than Thursday's close of C$1.2868, or 77.71 U.S.
    The currency touched its weakest level since April 18 of
    Overnight index swaps imply a 26 percent chance of a Bank of
Canada interest rate cut this year, having swung from a 20
percent chance of a hike seen at the beginning of the week.
    That is in contrast to the United States, where New York
Federal Reserve President William Dudley said that two U.S.
interest rate hikes this year are a reasonable expectation.
    Speculators increased bullish bets on the loonie, Commodity
Futures Trading Commission data showed. Net long Canadian dollar
positions rose to 18,943 contracts in the week ended May 3 from
11,999 contracts in the prior week.
    Canadian government bond prices were mixed across the
maturity curve, with the two-year price up 1.5
Canadian cents to yield 0.561 percent and the benchmark 10-year
 rising 4 Canadian cents to yield 1.353 percent.
    The Canada-U.S. 10-year spread was 3.6 basis points more
negative at -42.6 basis points, its largest gap since April 19,
as Canadian government bonds outperformed.

 (Additional reporting by Leah Schnurr in Ottawa, editing by G