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TORONTO (Reuters) - The Canadian dollar bounced off a one-week low hit earlier on Monday but still fell 1.4 percent versus the U.S. dollar as traders steered clear of risky assets ahead of key U.S. and Canadian jobs data later this week.
The Canadian employment report is expected to show the domestic economy continued to bleed jobs in January and support calls for more interest rate cuts by the Bank of Canada, which already lowered its key rate to a 50-year low last month.
"The market is waiting to see how January's data come out so they can assess whether or not this recession is deepening further or has reached a maturity," said Gareth Sylvester, senior currency strategist at HIFX Plc in San Francisco.
"There is a lack of risk appetite evident and that may remain the theme until the latter stage of this quarter when we can really say with a high degree of certainty what stage of this current recession we are in."
The Canadian dollar closed at C$1.2436 to the U.S. dollar, or 80.41 U.S. cents, down from C$1.2265 to the U.S. dollar, or 81.53 U.S. cents, at Friday's close.
The currency at one point fell to C$1.2467 to the U.S. dollar, or 80.21 U.S. cents, its weakest level since January 23.
Sylvester said the decision by traders to avoid riskier assets was also an extension of Canadian data released on Friday that showed the economy shrank more than expected.
On top of that, prices for oil fell nearly 4 percent due to gloomy projections for energy demand. The Canadian currency is often influenced by swings in oil prices as Canada is a key exporter of the commodity.
Much of the rebound in the Canadian currency from session lows on Monday was pegged to a slide in the greenback, whose safe-haven bid was diminished after a better-than-expected reading on U.S. manufacturing.
Friday's Canadian January jobs data is expected to show the economy shed 40,000 jobs after losing 34,400 in December.
Other Canadian data due this week include building permits for December and January's Ivey Purchasing Managers Index, both due on Thursday.
Canadian bond prices bounced off recent lows and ended up across the curve as a lingering effect from last week's soft GDP report and concerns ahead of the jobs figures contributed to a fresh wave of demand for more secure government debt.
Mark Chandler, a fixed income strategist at RBC Capital Markets said the slide in equity markets overseas and the ensuing selloff in North America also helped to give bond prices a lift.
Investors fled riskier assets like stocks in favor of more secure government debt overnight as jitters intensified about poor economic data and falling corporate profits in a rapidly slowing global economy.
Toronto's main stock index and the Dow Jones industrial average both tumbled 0.8 percent.
Bond prices had been getting hammered in recent weeks on concerns about supply in both Canada and the United States.
The two-year bond rose 17 Canadian cents to C$102.55 to yield 1.329 percent, while the 10-year bond climbed 63 Canadian cents to C$110.20 to yield 2.988 percent.
The 30-year bond rose C$1.70 to C$122.90 to yield 3.690 percent. In the United States, the 30-year treasury yielded 3.470 percent.
Editing by Jeffrey Hodgson