July 9, 2010 / 12:29 PM / in 10 years

CANADA FX DEBT-C$ surges after "blockbuster" jobs report

   * C$ touches high of 96.86 U.S. cents
 * Canada adds 93,200 jobs in June
 * Bond prices fall across the curve
 By Claire Sibonney
 TORONTO, July 9 (Reuters) - The Canadian dollar surged
against the greenback and bond yields shot higher on Friday
after the highly anticipated domestic jobs report for June far
surpassed expectations and solidified the view the Bank of
Canada will raise interest rates again this month.
 The Canadian dollar CAD=D4 jumped more than a cent to
touch a session high of C$1.0324 to the U.S. dollar, or 96.86
U.S. cents, its strongest level since June 28.
 Canadian employment surged by 93,200 in June,
contradicting other recent data suggesting the country's
galloping economic recovery was slowing. [ID:nN09262340]
  Analysts, in a Reuters poll, predicted an increase of
15,000 jobs after a moderate gain in May of 24,700 positions.
  "This is a blockbuster of a job report," said Eric
Lascelles, chief Canada macro strategist at TD Securities.
 "There is a lot of strength from top to bottom, and so
clearly this is very bond bearish, it is Canadian dollar
positive, and it argues for hikes not just in July, but
arguably beyond."
 The employment report represented the final key report
ahead of the July 20 Bank of Canada rate decision.
 Yields on overnight index swaps, which trade based on
expectations for the Bank of Canada's key policy rate, showed
the market sees an 87 percent chance of a July rate hike.
 Immediately before the data, investors priced in a 68
percent chance.
 At 8:04 a.m. (1204 GMT), the Canadian dollar was at
C$1.0340 to the U.S. dollar, or 96.71 U.S. cents, up from
Thursday's finish at C$1.0440 to the U.S. dollar, or 95.79 U.S.
 The next target was at the 100-day moving average at
C$1.0302, traders said.
 "All things being equal, it would probably tip the scales
for another hike in July, but I think right now it's almost
like a game of Sudoku," said Tom Nakamura, a fixed-income
portfolio manager at AGF Investments.
 "(The) global backdrop is what the Bank of Canada is
concerned about for Canada looking forward. So we'll have to
weigh that against continued strength in the domestic
 Recent nervousness over European bank stress tests,
monetary policy tightening in China and weakness in the U.S.
economy have fanned concerns of a global recession again.
 But with a near-term rate hike priced in, Canadian bond
prices slumped across the curve.
  The two-year government bond CA2YT=RR sank 26 Canadian
cents to yield 1.757 percent, while the 10-year bond
CA10YT=RR shed 55 Canadian cents to yield 3.261 percent.
 "Canadian yields are definitely edging higher here, led by
the front end, as you might expect," added Nakamura.
 "That would be the normal reaction to the data, a
flattening of the yield curve ... this could probably continue
a bit further, but then we'll have to take our cue from
developments next week."
  (Additional reporting by John McCrank; editing by Jeffrey

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