February 5, 2009 / 5:21 AM / in 9 years

Dollar ends higher ahead of jobs data

TORONTO (Reuters) - The Canadian dollar escaped a choppy session with a higher close versus the U.S. dollar on Thursday, getting a boost from commodity prices, while traders squared positions ahead of Friday’s key jobs data.

Higher prices for gold and oil, major Canadian exports, were a main driver behind the gain in the currency and helped reverse an early session drop.

“We had a rally in commodity prices and so that certainly helped ... that was probably the primary driver of the firmer tone in the Canadian dollar,” said Charmaine Buskas, senior economics strategist TD Securities.

Canada’s currency closed at C$1.2310 to the U.S. dollar, or 81.23 U.S. cents, up slightly from Wednesday’s close of C$1.2320 to the U.S. dollar, or 81.17 U.S. cents.

It rallied as high as C$1.2228 to the U.S. dollar, or 81.78 U.S. cents, in the afternoon. That was 1 percent above its North American session low of C$1.2356 to the U.S. dollar, or 80.93 U.S. cents.

Early weakness in the Canadian currency followed a fresh wave of concern about the European economy that gave a boost to the U.S. dollar as traders sought a safe haven play.

But the Canadian currency clawed back as soft jobs data out of the United States persuaded some traders to lighten up on long U.S. dollar positions.

One currency expert said some of the Canadian dollar’s recent strength can also be attributed to some merger-related interest and growth forecasts from the Bank of Canada that were less bearish than many had expected.

“Generally, things in Canada may not be as bad as they are globally and I think that’s the big-picture reason why Canada hasn’t really weakened off,” said Steve Butler, director of foreign exchange trading at Scotia Capital.

“Maybe there is some hope that we are going to have a rough go of it, but maybe it’s not going to be so bad here.”

That kind of optimism could change on Friday when figures are expected to show the Canadian economy shed 40,000 jobs in January and support calls for the Bank of Canada to cut its key rate below the current 50-year low of 1 percent. A U.S. report is expected to show 525,000 jobs were lost in January.

BOND PRICES REBOUND

Canadian bond prices were higher across the curve, but the move was limited as a rally in equities was spurred by hopes that a U.S. government plan for the financial system could include a measure to help banks stem losses.

After a lower start, North American equities closed higher, with Toronto’s main stock index ending up 1.93 percent and the Dow Jones industrial average rallying 1.34 percent.

The rally in bond prices followed a string of declines that was triggered by some better than expected economic data this week and nagging concerns about supply in both Canada and the United States.

Eric Lascelles, chief economics and rates strategist at TD Securities, said risk aversion helped boost bond prices.

The two-year bond rose 13 Canadian cents to C$102.66 to yield 1.257 percent, while the 10-year bond rose 72 Canadian cents to C$109.77 to yield 3.037 percent.

The 30-year bond rallied C$1.25 to C$122.15 to yield 3.727 percent. In the United States, the 30-year Treasury yielded 3.654 percent.

Editing by Peter Galloway

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