June 4, 2010 / 12:18 PM / in 7 years

CANADA FX DEBT-C$ falls on Europe woes, shrugs off strong jobs

* C$ down at 95.60 U.S. cents

* Canada adds 24,700 jobs vs 12,500 forecast

* Bond prices edge higher across curve

By Jennifer Kwan

TORONTO, June 4 (Reuters) - The Canadian dollar weakened against the U.S. currency on Friday as investors shrugged off stronger-than-expected Canadian jobs growth to focus on fresh concerns about the outlook for European and global growth.

Canada added 24,700 jobs in May, almost double the expected number, as the economy posted its fifth consecutive monthly increase in employment. The unemployment rate remained at 8.1 percent in May, matching market forecasts. [ID:nN04104059]

The Canadian dollar CAD=D4 briefly firmed to a session high of C$1.0352 to the U.S. dollar, or 96.60 U.S. cents, from about C$1.0379, or 96.35 U.S. cents, just before the data’s release. It then quickly touched a session low of C$1.0475 to the U.S. dollar, or 95.47 U.S. cents.

“Everybody’s completely ignoring the fantastic news we had from the employment numbers and concentrating on the bigger picture, which looks like more woes for the debt situation in Europe,” said Steve Butler, director of foreign exchange trading at Scotia Capital.

At 7:44 a.m. (1144 GMT), the Canadian currency was at C$1.0460 to the U.S. dollar, or 95.60 U.S. cents, compared with Thursday’s finish at C$1.0412 to the U.S. dollar, or 96.04 U.S. cents.

Comments from a leader of Hungary’s new ruling party was the latest catalyst, said Butler. The official said the country’s finances were in much worse shape than previously expected. [ID:nLDE6521H1]

As well, the euro fell to a fresh four-year low versus the dollar on Friday after the French Prime Minister Francois Fillon said he only saw good news in parity between the two currencies. [FRX/]

Still, the Canadian jobs data could provide more evidence for the Bank of Canada to raise rates in July, said Matthew Strauss, senior currency strategist at RBC Capital Markets.

“This would further suggest we could likely see another 25 basis point hike in July,” he said.

The Bank of Canada raised its key interest rate on Tuesday, the first G7 industrialized economy to do so after the global recession. Rate rises are likely to be a driving force for further Canadian dollar strength in the short and medium term, though European debt woes may cap gains, a Reuters poll found on Thursday. [ID:nN01264788] [CAD/POLL]

The markets will now turn their focus to a U.S. employment report, due at 8:30 a.m (1230 GMT). According to a Reuters poll, U.S. nonfarm payrolls is expected to show an increase of 513,000 jobs in May as the government ramped up hiring for the census, compared with a 290,000 increase in April. [ID:nN01175887] ECONUS

BONDS HIGHER

Shortly after the domestic jobs data, yields on overnight index swaps, which trade based on expectations for the Bank of Canada’s key policy rate, mostly edged higher, showing the market saw tightening as slightly more likely than before the data.

But within an hour of the report they had moved lower, suggesting tightening was less likely. BOCWATCH

Canadian bond prices were slightly higher across the curve on Friday. The two-year Canadian government bond CA2YT=RR was up 1 Canadian cent to yield 1.755 percent, while the 10-year bond CA10YT=RR gained 18 Canadian cents to yield 3.369 percent. (Reporting by Jennifer Kwan; Editing by Jeffrey Hodgson)

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