Canadian dollar gets boost from domestic jobs data

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(Reuters)

By Frank Pingue

TORONTO (Reuters) - The Canadian dollar shot higher versus the U.S. dollar on Friday after a domestic jobs report came in better than expected, but the currency then gave back more than half its gains as details of the data were digested.

Domestic bond prices were all higher across the curve as the jobs data did not alter expectations for a Bank of Canada rate cut in June.

At 8:20 a.m. EDT, the Canadian unit was at C$1.0088 to the U.S. dollar, or 99.13 U.S. cents, up from C$1.0171 to the U.S. dollar, or 98.32 U.S. cents, at Thursday's close.

The currency earlier jumped to C$1.0048 to the U.S. dollar, or 99.52 U.S. cents, from a pre-data level around C$1.0100 to the U.S. dollar, or 99.01 U.S. cents, after a report showed the Canadian economy created 19,200 jobs in April, nearly double the 10,000 jobs than the market had expected.

"The overall pace of job growth was stronger than expected and presumably that's what drove the immediate rally in the currency," said Eric Lascelles, chief economics and rates strategist at TD Securities. "But the details of the report aren't quite as strong and I think that's probably what caused the pullback."

The data showed the unemployment rate edged higher to 6.1 percent from 6.0 percent in March and the overall gain in jobs paled in comparison to some of the gains made earlier this year, notably the more than 40,000 jobs created in January and February.

"It's one of those (reports) that makes your head spin and you can put almost any interpretation on it you like and I think the market is probably struggling to sort out what the proper conclusion is," said Lascelles.

So while the week's most highly anticipated piece of data arrived higher than expected, it did not do anything to alter the outlook for domestic interest rates as the Bank of Canada is still expected to lower its key rate by 25 basis points to 2.75 percent at its next fixed-announcement date on June 10.

Another support for the commodity-linked Canadian dollar was a rise in oil prices to a new high above $125 a barrel. Earlier this week the Canadian dollar rose above parity versus the U.S. dollar as oil prices hit a record high.

BONDS RISE

Canadian bond prices were higher as the headline number for domestic job creation in April lagged the size of the gains made earlier this year, supporting calls for a Bank of Canada rate cut next month.

The Canadian central bank has already slashed its key overnight rate by 150 basis point since December.

Lascelles acknowledged the breakdown of the jobs report may be partly responsible for the rise in domestic bond prices but he also credited the influence from the bigger U.S. Treasury market for the rally.

"You need to concede that U.S. bonds are rallying as well so there is a little bit of that (support)," he said.

The overnight Canadian Libor rate was 3.0150, up from 3.0016 on Thursday.

The two-year bond was up 2 Canadian cents at C$102.00 to yield 2.743 percent. The 10-year rose 27 Canadian cents to C$103.04 to yield 3.603 percent.

The yield spread between the two- and 10-year bonds was 86.0 basis points, down from 87.8 at the previous close.

The 30-year bond added 63 Canadian cents to C$115.18, for a yield of 4.101 percent. In the United States, the 30-year Treasury yielded 4.498 percent.

The three-month when-issued T-bill yielded 2.59 percent, down from 2.60 percent at the previous close.

(Editing by Renato Andrade)