TORONTO (Reuters) - Canada’s dollar hit its lowest point in more than a week against the U.S. currency on Friday as intensifying concerns about the outlook for European and global growth outweighed firm domestic jobs data.
North American equity markets also slumped, contributing to sinking sentiment for riskier assets, following softer than expected U.S. job numbers and news that Hungary’s finances were in much worse shape than previously expected.
“These fears in Hungary of further defaults got the markets scared again,” said Aaron Fennell, senior markets strategist at futures brokerage Lind-Waldock.
“It’s basically been a mass exodus into the U.S. dollar from any asset that’s perceived to be risky. That seems to include the Canadian dollar.”
The currency finished at C$1.0607 to the U.S. dollar, or 94.28 U.S. cents, down sharply from C$1.0412 to the U.S. dollar, or 96.04 U.S. cents, at Thursday’s close. The currency was down 0.8 percent on the week.
At one point, the currency tumbled to C$1.0626 to the U.S. dollar, or 94.11 U.S. cents, its weakest level since May 27.
The European worries roiled financial markets, and also triggered a drop in the euro to its lowest in more than four years, further exacerbating a flight from riskier assets.
Market players looked past May Canadian job figures, which were almost double the number expected, while other Canadian data, building permits for April and the Ivey Purchasing Managers’ index for May, also reinforced momentum in Canada’s economic recovery.
The jobs data also prompted analysts to predict the Bank of Canada would come under more pressure to raise interest rates again next month despite rocky global markets.
“This would further suggest we could likely see another 25 basis point hike in July,” said Matthew Strauss, senior currency strategist at RBC Capital Markets.
Yields on overnight index swaps, which trade based on expectations for the Bank of Canada’s key policy rate, showed a 53 percent chance that further tightening was in store in July.
Canadian bond prices were firmly higher across the curve, following U.S. Treasuries, in a flight to safety after U.S. nonfarm payrolls rose less than forecast.
U.S. employers created 431,000 jobs in May, the U.S. Labor Department said, well below the 513,000 increase predicted by analysts polled by Reuters. The U.S. jobless rate fell more than expected to 9.7 percent from 9.9 percent in April.
The two-year Canadian government bond surged 29 Canadian cents to yield 1.613 percent, while the 10-year bond gained C$1.01 to yield 3.272 percent.
Canadian bonds outperformed U.S. Treasuries at the short end of the curve. The Canadian two-year bond was 88.1 basis points above the U.S. 2-year yield, down from 94.1 basis points on Thursday.
With additional reporting by Jennifer Kwan; editing by Jeffrey Hodgson