April 5, 2012 / 8:43 PM / in 5 years

Canadian dollar ends slide on "shocking" jobs data

Canadian loonies, one dollar coins, are displayed in this posed photograph in Toronto, October 10, 2008.Mark Blinch

TORONTO (Reuters) - The Canadian dollar rallied against its U.S. counterpart on Thursday, boosted by a stunning jump in Canadian employment numbers in March that halted a six-month string of soft job growth and signaled the economy was gaining traction.

The 82,300 jobs added in March was the largest monthly job increase since September 2008, Statistics Canada said on Thursday. It was also eight times higher than the gain of 10,000 jobs that had been predicted by economists in a Reuters survey.

"Whenever you get a huge number like that it is a shocking development," said Benjamin Reitzes, senior economist and foreign exchange strategist at BMO Capital Markets.

Canada's jobless rate also dipped to a six-month low of 7.2 percent from 7.4 percent in February, more than 1 percent below the comparable U.S. rate.

Even though Canada had recovered all the jobs it lost during the recession by early last year, employment growth had stalled over the past six months and began underperforming that in the United States for the first time since the 2008-09 recession.

"There had been concern with languishing job gains," said Paul Ferley, assistant chief economist for Royal Bank of Canada. "But this pick-up indicates the situation is not as worrying as some of the earlier data suggested, so more momentum in the economy."

The strong domestic data helped the Canadian currency reverse a two-day slide against the U.S. dollar, prompted by fresh European debt concerns and after the greenback was boosted this week by signals the U.S. Federal Reserve was less open to further monetary stimulus.

The Canadian dollar finished at C$0.9938 versus the U.S. currency, or $1.0062, up from Wednesday's close at C$0.9964 versus the U.S. currency, or $1.0036. It was up 0.4 percent for the Easter holiday-shortened week.

Canada's dollar also outperformed most major currencies, rising sharply against the euro, sterling and Swiss franc.

The Canadian jobs bounce had traders increasing bets on a rate hike by the Bank of Canada in the second half of 2012, as reflected by overnight index swaps.

"The stronger than expected data raises the prospect of the Bank returning to tightening mode sooner than was previously expected and with that offering support to the Canadian dollar," said Ferley.

Higher interest rates tend to help a currency strengthen by attracting global investment flows.

A Reuters poll released on Wednesday showed the Canadian dollar at exactly $1.00 in one, three and six months from now. In a year, the currency is expected to strengthen slightly to C$0.988 versus the U.S. dollar.

For the last two months, the currency has stayed within a roughly 2-cent window between C$0.9842 and C$1.0052.

Reitzes said factors that could push it outside that range included upside pressure from rate hike expectations or downward pressure from weak North American economic data, a sharp slowdown in Chinese growth, or an escalation of Europe's debt crisis.

Fears about Spain's high debt level pushed the euro down broadly on Thursday to its lowest level against the U.S. dollar in three weeks. The single currency was further pressured by U.S. data that showed weekly American jobless claims fell to the lowest level in nearly four years. <FRX/>

Canadian government bond prices were mixed, reflecting the contrast in sentiment on either side of the Atlantic and increase in rate hike expectations.

Canada's 2-year bond was down 8 Canadian cents to yield 1.259 percent, while the 10-year bond rose 2 Canadian cents to yield 2.128 percent.

Canadian bonds underperformed their U.S. counterparts after the strong jobs data.

($1=$0.99 Canadian)

Editing by Jeffrey Hodgson

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