* C$ ends at 98.20 U.S. cents
* Canada economy adds 21K jobs, jobless rate at 8.2 pct
* Bonds lower on rate hike expectations
By Ka Yan Ng
TORONTO, March 12 (Reuters) - The Canadian dollar advanced
against the U.S. currency for an 11th straight session on
Friday, hitting a 20-month high, after firmer than expected
Canadian employment data provided more evidence that economic
recovery is taking hold.
The Canadian dollar was already firmer in the overnight
session, and after the jobs report it swiftly reached its
highest level since July 2008 -- C$1.0155, or 98.47 U.S. cents
-- against the U.S. currency.
Canada's unemployment rate fell to 8.2 percent in February
from 8.3 percent in January as 20,900 more people found work in
the month. Economists surveyed by Reuters had forecast net job
growth of 20,000 jobs in February and an 8.3 percent
unemployment rate. [ID:N12253705]
"That was a lot more than a feather in the currency's cap.
The jobs report was unambiguous. It showed again that the
recovery is truly on," said Doug Porter, deputy chief economist
at BMO Capital Markets.
The Canadian dollar finished at C$1.0183 to the U.S.
dollar, or 98.20 U.S. cents, up from C$1.0243 to the U.S.
dollar, or 97.63 U.S. cents, at Thursday's close.
The solid employment report also raised expectations that
the Bank of Canada will raise interest rates. Yields on
overnight index swaps, which trade based on expectations for
the central bank's key policy rate, edged higher after the
report, showing the market saw credit tightening as slightly
more likely than before the data.
Next week's Canadian inflation data could be "potentially
critical" for monetary policy, said Porter. "If we and the
consensus are wrong on that one, look out above for the
currency," he said.
Market expectations are for core inflation to cool to 1.7
percent, and a surprise move higher toward the Bank of Canada's
inflation target of 2 percent could spell more strength in the
Canadian dollar and amplify debate on credit tightening policy.
As Canadian dollar has been rallying in recent weeks on
expectations Canada could hike interest rates well ahead of the
United States, government bond prices have been falling.
The Bank of Canada has pledged to keep its key interest
rate at its current ultra-low level of 0.25 percent until July,
but the market suggests the chances are high the rate will be
around 1.0 percent by October.<BOCWATCH>
"If we continue to see data surprising to the upside to
this extent that we've seen this morning I think there will be
increasing speculation that the Bank of Canada might go
earlier. Or, if they start in July they might hike by more than
25 basis points," said Matthew Strauss, senior currency
strategist at RBC Capital Markets.
"That is slowly starting to filter through to the market,
and therefore the negative reaction in the bond market and the
positive reaction from the Canadian dollar side."
The move lower was supported by U.S. Treasuries, which
extended losses after data showed U.S. retail sales rose in
The two-year government bond <CA2YT=RR> was off 12 Canadian
cents at C$99.84 to yield 1.583 percent, while the 10-year bond
<CA10YT=RR> was down 30 Canadian cents at C$101.65 to yield
Canadian bonds mostly undperformed their U.S. counterparts,
except in the 10-year issue. The difference between 10-year
yields narrowed 6.9 basis points to 15.8 basis points.
(Reporting by Ka Yan Ng and Jennifer Kwan; editing by Peter