May 6, 2011 / 9:08 PM / 9 years ago

CANADA FX DEBT-C$ pares gain as Greek fears undercut job data

 * C$ ends at C$0.9670 vs US$, or $1.0341
 * C$ tracks weakness in euro after Greece reports
 * Canada added 58,300 jobs; beating expectations
 * Oil prices post biggest weekly loss on record
 * Bond prices soften; Canada underperforms Treasuries
 (Updates to close, adds weekly figures)
 By Claire Sibonney
 TORONTO, May 6 (Reuters) - Canada's dollar edged higher
against the U.S. currency on Friday, but lost most of its big
early gains as it tracked a sliding euro.
  The euro tumbled against the greenback after a report,
later denied, that suggested Greece was considering leaving the
euro zone. Other risk-related currencies such as the Canadian
dollar were dragged down with the euro.  [FRX/]
 The Canadian currency had made solid gains earlier in the
session, triggered by unexpectedly strong Canadian and U.S.
jobs data.
 Spiegel Online reported that euro zone finance ministers
were meeting in Luxembourg on Friday to discuss Greece,
including the issue of its possible exit from the currency
bloc. The Greek finance ministry, however, denied the country
had raised the possibility of leaving the euro zone.
 "Euro has had a tough week as it is," said Shane Enright,
executive director of foreign exchange sales at CIBC, referring
to less hawkish than expected comments from European Central
Bank President Jean-Claude Trichet on Thursday that spurred a
drop in the currency.
 "These comments (about Greece) have only served to further
add to the pressure despite the denial from Greek officials,"
Enright said. "That's added to the risk-off tone that we've
seen earlier in the week and probably nullified to a degree
what were very good North American job numbers."
 Both Canada and the United States created far more jobs
than expected in April. Canada's data -- net job creation of
58,300 -- signaled solid economic growth in the second quarter
and reinforced forecasts of interest rate hikes later this
year. [ID:nN06160819] [ID:nOAT004799]
 The Canadian dollar rallied as high as C$0.9573 to the U.S.
dollar, or $1.0446, following the jobs data.
 But it soon succumbed to safe-haven U.S. dollar strength
and volatile trading in commodity markets as oil prices
extended losses following a 10 percent plunge on Thursday.
Crude prices put in their biggest weekly loss on record this
week. [O/R]
 Also weighing on the Canadian dollar, Enright said, was a
reminder from Bank of Canada Governor Mark Carney that the
currency's robustness has sapped some of the country's
manufacturing competitiveness. [ID:nWAT015097]
 The Canadian dollar CAD=D4 ended the North American
session at C$0.9670 to the U.S. dollar, or $1.0341, up slightly
from Thursday's finish of C$0.9682 versus the U.S. dollar, or
$1.0328. It was off 2.3 percent for the week.
 Enright said Thursday's low of C$0.9713 against the U.S.
dollar, or $1.0295, would offer near-term support for the
Canadian dollar, with significant buying interest coming in at
C$0.9690, or $1.03199.
 Elsa Lignos, G10 currency strategist at RBC Capital Markets
in London, said the Canadian dollar's play as a North American
currency would benefit it, underpinned by employment strength
on both sides of the border.
 "We still favor long CAD positions, particularly as we head
into the May 31 Bank of Canada meeting, where we think they're
going to start laying the ground for hikes beginning in July,"
Lignos said.
 Overnight index swaps, which trade based on expectations
for the key central bank rate, showed investors slightly
increasing bets on rate hikes in 2011 after the Canadian jobs
data was published. BOCWATCH
 Canadian bond prices cut some of their earlier losses --
mimicking U.S. Treasuries as risk aversion seeped back into the
market -- but still ended lower. [US/]
 The two-year Canadian government bond CA2YT=RR was off 3
Canadian cents to yield 1.672 percent, while the 10-year bond
CA2YT=RR was down 8 Canadian cents to yield 3.201 percent.
 Canadian bonds mostly underperformed Treasuries, especially
at the short end of the curve. Canada's two-year bond yield was
111 basis points above its U.S. counterpart, compared with 108
basis points on Friday.
 (Editing by Peter Galloway)

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