CANADA FX DEBT-C$ ends weaker after volatile day, bonds rise

* C$ hits 85.92 US cents, lowest level in over 5 weeks

* Bonds rise after U.S. data

* U.S. 1st qtr GDP contracts less, jobless claims up (Adds details)

TORONTO, June 25 (Reuters) - The Canadian dollar fell against the U.S. dollar on Thursday, pulled lower by an unexpected rise in weekly U.S. jobless claims that dimmed the economic picture, but firmer oil prices cushioned the fall.

At one point, the Canadian currency fell as low as C$1.1639 to the U.S. dollar, or 85.92 U.S. cents, its lowest level since May 18, before trimming losses as the price of oil, a key Canadian export, rose more than 2 percent to above $70 a barrel.

Its high for the day was C$1.1523 to the U.S. dollar, or 86.78 U.S. cents.

Early U.S. data put some pressure on the Canadian dollar as initial claims for state unemployment insurance for the week increased by 15,000 to a greater-than-expected seasonally adjusted 627,000. That overshadowed a report that showed the U.S. economy contracted less than previously thought in the first quarter. [ID:nN25259990]

The Canadian currency finished at C$1.1562 to the U.S. dollar, or 86.49 U.S. cents, down from C$1.1525 to the U.S. dollar, or 86.77 U.S. cents, at Wednesday’s close.

The Canadian dollar’s fall extended the descent it started on Wednesday, when the U.S. Federal Reserve said it would keep interest rates unchanged and also removed from its statement a reference pointing to its concern that inflation could run below desired levels.

“Certainly the Fed has put a bid tone into the (U.S.) dollar overnight against everyone. We think dollar/Canada, especially, is going to run into some resistance around the C$1.1640-60 mark. That could prove to be a tough nut to crack on the way up,” said Mark Frey, head trader at Custom House.

“Should we have a daily close above the C$1.1660 mark, I think that opens up for a run well into the C$1.17s...but we might not get through on a short-term basis at least.”


Canadian bond prices were higher across the curve, helped by a well-received auction of new U.S. seven year notes and by U.S. initial jobless claims data that clouded views on the pace of U.S. recovery from recession.

Another factor that helped lift prices in the short-dated issues were announcements by the Canadian and U.S. central banks that they would continue to provide special liquidity facilities. [ID:nN25277604]

“The extension of the liquidity arrangements by both the Bank of Canada and the U.S. should have helped the front end a little bit, and it did,” said Mark Chandler, fixed income strategist at RBC Capital Markets.

The benchmark two-year government bond rose 6 Canadian cents to C$100.02 to yield 1.239 percent, while the 10-year bond gained 30 Canadian cents to C$102.70 to yield 3.426 percent.

The 30-year bond climbed 10 Canadian cents to C$118.40 to yield 3.911 percent. The comparable U.S. issue yielded 4.320 percent.

Canadian bonds underperformed U.S. Treasuries across the curve, except in the three-year issue. The Canadian 30-year bond was 89.4 basis points below the U.S. 30-year yield, compared with 52.2 basis points on Wednesday. (Editing by Peter Galloway)