May 7, 2009 / 8:54 PM / 9 years ago

CANADA FX DEBT-C$ touches '09 high, closes lower as stocks slide

* C$ rallies as high as 85.99 U.S. cents

* Key Canadian and U.S. jobs data in focus

* Bond prices end lower, outperform U.S. Treasuries

By Frank Pingue

TORONTO, May 7 (Reuters) - Canada’s currency ended lower versus U.S. greenback on Thursday as a skid in equities and uncertainty ahead of key jobs data sapped risk appetite and yanked it from a six-month high hit early in the session.

The rally in equities overseas was enough to carry the Canadian dollar to C$1.1629 to the U.S. dollar, or 85.99 U.S. cents, its highest level since Nov. 6.

North American stocks rallied at the open but that quickly fizzled and took the domestic currency along for the ride as the market positioned itself for monthly jobs data due from Canada and the United States on Friday.

“Equities looked like they were off and running at the start and turned around quickly and that put a damper on the risk play and commodity currencies backed off from there,” said Steve Butler, director of foreign exchange at Scotia Capital.

“We’ve also got that key employment report tomorrow and I think the market is probably happy to take a little bit of a breather and take some profits off the table for those people that have been riding the wave this week.”

The Canadian dollar closed at C$1.1725 to the U.S. dollar, or 85.29 U.S. cents, down from C$1.1658 to the U.S. dollar, or 85.78 U.S. cents, at Wednesday’s close.

The price of oil, a key Canadian export, closed near a six-month high and helped to cushion the Canadian dollar’s latest fall.

The domestic currency is up comfortably from the four-year low of C$1.3066 to the U.S. dollar, or 76.53 U.S. cents, that it fell to in early March.

The Canadian jobs data is expected to show the economy shed 50,000 jobs in April while the unemployment rate increased to 8.3 percent, according to a Reuters survey. But the data could be overshadowed as it will be followed shortly after by a U.S. jobs report.

“The Canadian numbers could be fairly weak whereas the U.S. might surprise to the upside and that potential does actually argue that we could see a softer Canadian dollar tomorrow,” said Eric Lascelles, chief economics and rates strategist at TD Securities.

“But those traditional relationships don’t always hold because frankly if the U.S. were to get better (than expected data) it might just be a further unwind of the safe haven effect which could ultimately weaken the (U.S.) dollar.”

BOND PRICES LOWER

Canadian bond prices, with no domestic data to influence a move, finished lower alongside the bigger U.S. Treasury market, which often sets the tone for the Canadian market when there is no domestic news.

U.S. Treasury debt prices retreated sharply on Thursday, pushing yields to five-month highs, after a weak auction of 30-year bonds reinforced a rout first triggered by a decline in jobless claims. [nN07443635]

The benchmark two-year Canadian government bond dropped 9 Canadian cents to C$100.37 to yield 1.070 percent, while the 10-year bond dropped 60 Canadian cents to C$105.25 to yield 3.138 percent.

The 30-year bond ended down C$1.00 at C$118.30 to yield 3.919 percent.

Canadian bonds outperformed their U.S. counterparts across much of the curve, especially at the long end. The 30-year bond yield was 36 basis points below the U.S. 30-year yield, compared with around 22 basis points below on Wednesday. (Editing by Jeffrey Hodgson)

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