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CANADA FX DEBT-C$ up for third straight week as jobs surge boosts rate hike bets

Reuters · 01/06/2023 16:00
CANADA FX DEBT-C$ up for third straight week as jobs surge boosts rate hike bets

Adds analyst quote and details throughout; updates prices

Canadian dollar strengthens 1% against greenback

Touches strongest level since Dec. 5 at 1.3434

Canada's economy adds 104,000 jobs in December

Canadian bonds track rally in U.S. Treasuries

By Fergal Smith

- The Canadian dollar strengthened to a one-month high against its U.S. counterpart on Friday as investors raised bets on further tightening by the Bank of Canada after domestic data showed a huge jobs gain in December.

The Canadian economy gained 104,000 jobs last month, far exceeding analysts' forecasts of a rise of 8,000, while the jobless rate unexpectedly declined to 5%, Statistics Canada data showed.

"This should help the loonie outperform among the G10 ex-dollar," said Simon Harvey, head of FX analysis for Monex Europe and Monex Canada.

"The outturn of today's jobs data is likely to keep the market base case firm around another 25-basis-point hike at the end of the month."

Money markets see a roughly 75% chance of a quarter-percentage-point rate hike by the BoC when it meets to decide on policy on Jan. 25, up from 64% before the release of the jobs data.

The Canadian dollar CAD= was trading 1% higher at 1.3434 to the greenback, or 74.44 U.S. cents, its strongest level since Dec. 5. For the week, it was up 0.9%, its third straight weekly advance.

The currency will rally this year, but much of the upswing will have to wait until a period of uncertainty passes for the domestic and global economies following aggressive tightening by central banks in 2022, a Reuters poll forecast.

The loonie's rise coincided with weakness in the U.S. dollar, which fell against a basket of currencies after U.S. data showed an easing of wage gains in December. The U.S. jobs data triggered a rally on Wall Street and in U.S. Treasury bonds that spilled over into the Canadian government bond market.

Canada's 10-year yield CA10YT=RR fell 8.7 basis points to 3.096%. Still, it was trading about 7 basis points closer to the equivalent U.S. rate at a gap of 46.8 basis points in favor of the U.S. bond.

(Reporting by Fergal Smith; Editing by Andrew Heavens and Paul Simao)

((fergal.smith@thomsonreuters.com; +1 647 480 7446;))