By Lynne Olver
TORONTO, Sept 7 (Reuters) - The Canadian dollar fell
against the U.S. currency on Friday, giving back early gains
spurred by a strong domestic jobs report, as fresh concerns
about a weaker U.S. economy overshadowed Canada-friendly news.
Domestic bond prices soared alongside their U.S.
counterparts, as a shocking decline in August payrolls in the
United States was seen ratcheting up pressure on the Federal
Reserve to cut U.S. interest rates.
The Canadian unit closed at C$1.0545 to the U.S. dollar, or
94.83 U.S. cents, down from C$1.0525 to the U.S. dollar or
95.01 U.S. cents, at Thursday's close.
The Canadian currency got an early boost, rising as high as
C$1.0475 per U.S. dollar, or 95.47 U.S. cents, when data showed
the domestic economy added more than 23,000 jobs in August,
higher than economists had expected.
The report also showed wage gains accelerating.
"The most striking part is that a lot of the wage gains
occurred over the last three months, and this is obviously
something that is going to be important to the Bank of Canada,"
said Carolyn Kwan, senior economist and strategist with Merrill
Lynch Canada in Toronto.
Meanwhile, the U.S. dollar tumbled against major currencies
after the U.S. jobs report showed a net decline in hiring in
August for the first time in four years.
But instead of benefiting the Canadian currency, it sparked
concerns about the implications of a U.S. economic slowdown.
"We had a shocking decline of around 4,000 jobs in the
U.S., in contrast to expectations, so I think there's a bit of
nervousness that some of the U.S. economic weakness will
eventually spill over to Canada," Kwan said.
"As demand wanes in the U.S., obviously it will affect
Even higher oil and gold prices, which often drive the
commodity-linked Canadian dollar, did not help the currency.
On the agenda next week, Bank of Canada Governor David
Dodge will give a speech in London to the Canada-U.K. Chamber
of Commerce on Wednesday, and market participants will be keen
for any remarks on financial market volatility.
Domestic bonds swung higher, following the rally in U.S.
treasuries, as the weak U.S. jobs data built up expectations of
a Fed rate cut at its Sept. 18 policy setting meeting.
The Canadian two-year bond yield fell more than 10 basis
points, "which is a pretty big move for one day," Kwan noted,
but Canadian bonds underperformed their U.S. counterparts.
"The divergent economic data was reflected in the two bond
markets, we had much less of a rally," she said.
The two-year bond price rose 18 Canadian cents to C$99.35
to yield 4.141 percent, while the 10-year bond jumped 60
Canadian cents to 97.80 to yield 4.278 percent.
The yield spread between the two-year and 10-year bond
moved to 13.7 basis points from 10.5 at the previous close.
The 30-year bond was up 84 Canadian cents at C$111.20 to
yield 4.326 percent. In the United States, the 30-year treasury
yielded 4.695 percent.
The three-month when-issued T-bill yielded 4.06 percent,
down from 4.09 percent at the previous close.