TORONTO (Reuters) - The Canadian dollar was knocked to its lowest level in nearly a year versus the U.S. dollar on Friday after Canadian jobs data came in worse than expected, in another sign that the economy is slowing down.
Bond prices bounced back from early-morning losses to move higher across the curve as the jobs data likely means that Bank of Canada will stick to the sidelines in the near future, and may even deliver an interest rate cut.
At 8:40 a.m. EDT, the Canadian currency was at C$1.0664 to the U.S. dollar, or 93.77 U.S. cents, down from C$1.0530 to the U.S. dollar, or 94.97 U.S. cents, at Thursday’s close.
The bulk of the losses came immediately after data showed the Canadian economy shed 55,000 jobs in July. That was much worse than expectations for a gain of 5,000 jobs and was also the biggest job loss since February 1991.
The Canadian currency slid as far as C$1.0685 to the U.S. dollar, or 93.59 U.S. cents, its lowest level since August 17, from a pre-data level around C$1.0624 to the U.S. dollar, or 94.13 U.S. cents.
“We got a quick reaction to the employment numbers as people added to long U.S. dollar positions,” said George Davis, chief technical strategist at RBC Capital Markets.
“But once the reaction to the employment number dried up, given that the market was a little overdone after the overnight rally, we saw prices basically just drift back.”
The jobs report represented another in a growing line of figures that have suggested the Canadian economy is starting to slow down after proving resilient earlier this year in the face of a U.S. economic slowdown.
During the overnight session, the Canadian dollar had already been under pressure due to weakening oil prices weakened and a rallying greenback.
Concerns about global growth have sapped commodity demand and weigh heavily on oil prices, which hurts the Canadian dollar since Canada is a key exporter of oil.
After trading in a tight range versus the U.S. dollar for much of this year, the Canadian currency has fallen through key technical levels, and has dropped in 11 of the past 12 sessions.
Canadian bond prices erased early losses and rallied as the big July job loss convinced dealers to start pricing in the possibility of a Bank of Canada interest rate cut before the end of the year.
“That’s getting priced into the short end of the curve, maybe not only one, maybe two, and maybe not by December maybe even earlier,” said Michael Gregory, senior economist at BMO Capital Markets. “This number is huge. It’s so huge it makes you believe it’s going to reverse itself a bit next month.”
The two-year bond rose 26 Canadian cents to C$101.96 to yield 2.627 percent. The 10-year bond climbed 28 Canadian cents to C$105.25 to yield 3.608 percent.
The yield spread between the two-year and 10-year bond was 117 basis points, up from 103 basis points.
The 30-year bond was up 2 Canadian cents at C$115.67 for a yield of 4.071 percent. In the United States, the 30-year Treasury yielded 4.584 percent.
The three-month when-issued T-bill yielded 2.51 percent, down from 2.53 percent at the previous close.
Editing by Peter Galloway