Friday July 6, 2007 - 21:55:48 GMT
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Forex News - Canadian dollar surges on jobs data, bonds fall
Canadian dollar surges on jobs data, bonds fall
Fri Jul 6, 2007 5:41PM EDT
By John McCrank
TORONTO, July 6 (Reuters) - The Canadian dollar hit a
30-year high against the greenback on Friday, propelled by
strong employment data, surging oil prices and expectations of
higher interest rates.
Bonds reacted negatively to the jobs numbers, which
cemented expectations that the Bank of Canada will raise
interest rates on Tuesday.
The currency closed higher for a fourth straight session,
ending at C$1.0490 to the U.S. dollar, or 95.33 U.S. cents,
compared with C$1.0567, or 94.63 U.S. cents, at Thursday's
The Canadian dollar touched a high of C$1.0463 to the U.S.
dollar, or 95.57 U.S. cents after Statistics Canada said the
economy added 34,800 jobs in June, about double what was
A Reuters survey taken after the data saw consensus among
Canada's 13 primary securities dealers in forecasting a 25
basis point rate hike by the the central bank on Tuesday. A
majority said the bank will probably tighten further in
"The chance of a second hike has increased a lot since the
data came out this morning," said David Bradley, director of
foreign exchange trading at Scotia Capital.
The central bank has left its overnight rate at 4.25
percent since May 2006, but the sizzling economy prompted it to
warn that rates may have to rise to ease inflation pressures.
The prospect of higher rates is prompting speculators to
buy Canadian dollars, thinking that the currency is not done
climbing, said Scotia Capital's Bradley.
"The sentiment out there seems to be that the Canadian
dollar is going to continue to strengthen," he said.
With Canada a major energy producer and exporter, rising
oil prices also helped the currency. London Brent crude ended
near 11-month highs at $75.62 while U.S. crude settled up $1 at
BOND PRICES PULLED LOWER
The strong jobs data pulled bond prices lower, as the
market continued to price in multiple rate hikes.
A surprisingly strong U.S. June jobs report added to the
price declines. The U.S. economy added 132,000 new jobs in
June, topping forecasts for 120,000.
Looking beyond Tuesday's Bank of Canada decision, Carlos
Leitao, chief economist at Laurentian Bank of Canada, said the
next important hurdle will come in the following week with the
domestic inflation report for June.
"There's a pretty good inkling that we're going to go back
up to about a 2.4-2.5 percent range on a year-over-year basis
for core CPI, and that too could accelerate the movement in
yields," he said. "So, in the short-term, I see yields
continuing to rise quite a bit."
Bond prices and yields move in the opposite direction.
The two-year bond was down 10 Canadian cents at C$98.24 to
yield 4.731 percent, while the 10-year bond fell 46 Canadian
cents to C$94.92 to yield 4.706 percent.
The yield spread between the two-year and 10-year bond
moved to -2.5 basis points from -3.3 at the previous close.
The 30-year bond shed C$1 to C$116.75 to yield 4.632
The three-month when-issued T-bill yielded 4.47 percent,
unchanged from the previous close.
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