April 9, 2010 / 12:24 PM / 8 years ago

Jobs data tugs Canadian dollar away from parity; bonds firm

TORONTO (Reuters) - The Canadian dollar ended on a weaker note on Friday, tumbling away from parity with the greenback after data showed softer jobs growth in March than expected.

The Canadian currency fell as low as C$1.0084 to the U.S. dollar, or 99.17 U.S. cents, as investors reacted to the jobs data, which eased pressure on the Bank of Canada to raise interest rates. Before release of the jobs data, it was trading close to one-for-one with the U.S. dollar.

Canada’s economy added a net 17,900 jobs in March, following gains of 20,900 in February and 43,000 in January. The unemployment rate remained steady at 8.2 percent.

Expectations had been for an increase of 25,000 jobs and an unemployment rate of 8.2 percent.

“There was some talk on the Street that the job gains in March would be significantly higher than the 25,000 expected by the market. When it turned out we didn’t get that level of job growth in March it more or less sucked the air out of the Canadian dollar,” said Millan Mulraine, economics strategist at TD Securities.

“The Canadian dollar never fully recovered from that drop.”

The currency finished the session at C$1.0040 to the U.S. dollar, or 99.60 U.S. cents, down from Thursday’s close at C$1.0028 to the U.S. dollar, or 99.72 U.S. cents. It rose 0.4 percent on the week.

“It’s softer than expected, but not soft numbers,” Matthew Strauss, senior currency strategist at RBC Capital Markets, said of the employment report.

“As a result, it doesn’t really change our outlook on the Bank of Canada or interest rates going forward. We’re still looking for the tightening process to start in the summer of this year, and most likely July.”

Strauss added there was an “obvious knee-jerk reaction” after the soft job numbers, but he noted there was still an increase and the data did not take away from the improving trend in Canadian employment.

The Bank of Canada has made a conditional pledge to hold its key interest rate at a record low of 0.25 percent until the end of June, provided inflation stays tame.

“This still is very much in line with the Bank of Canada raising rates beginning in July, which the market has fully priced in,” said Avery Shenfeld, chief economist at CIBC World Markets.

“It wasn’t a barn-burner report. There were certainly some who were looking for a stronger number ... but it doesn’t dramatically alter the fundamentals for the currency.”

Strauss said a firmer tone in investor risk appetite as seen in North American equities helped the Canadian dollar claw back from low levels.

BONDS FIRM

Canadian bond prices rose after the jobs report in a knee-jerk reaction, but quickly came off their highs, Strauss said.

As well, TD’s Mulraine said prices also got support from underlying concerns about Greece’s debt woes.

“Even though we’ve had the Greek situation on us for months now, every day something happens that seems to cause some movement in the market. Today we did have the downgrade of Greek bonds by Fitch ... that certainly has engendered a bit of a risk aversion trade,” he said.

The two-year government bond rose 6 Canadian cents to C$99.38 to yield 1.835 percent, while the 10-year bond climbed 23 Canadian cents to C$100.75 to yield 3.653 percent.

Canadian government bonds outperformed U.S. issues, with the Canadian 10-year yield 23.1 basis points below its U.S. counterpart, compared with around 20 basis points the previous session.

Additional reporting by Claire Sibonney; editing by Rob Wilson

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