Canadian dollar up over a cent, bonds rally

By John McCrank

TORONTO, May 9 (Reuters) - The Canadian dollar rose more
than a cent against the U.S. dollar on Friday, a move
attributed to technical factors as well as domestic jobs data,
against a positive backdrop of record-setting oil prices.

Domestic bond prices rallied, playing catch-up with the
larger U.S. market.

The Canadian dollar closed at C$1.0056 to the U.S. dollar,
or 99.44 U.S. cents, up from C$1.0171 to the U.S. dollar, or
98.32 U.S. cents, at Thursday's close.

It was a choppy week for the currency, bouncing from C$1.02
to the U.S. dollar to parity over two days, and then back to
C$1.0170 in two days, but ultimately it ended 1.4 percent
higher.

"I don't think there is anything really in terms of data
releases that would have spurred that level of volatility,"
said Gareth Sylvester, senior currency strategist at HIFX in
San Francisco.

"So that would lead us to suggest it was more of a
technical-style move rather than anything else," he said.

The Canadian dollar shot higher early in the session after
a report showed the economy performed better than expected in
April. The currency then gave back some of its gains as details
of the data were digested.

The Statistic Canada report showed 19,200 jobs were created
in April, while 10,000 had been expected.

Other details, however, showed the unemployment rate edged
higher to 6.1 percent from 6.0 percent in March, the wage
measure component eased, and private-sector employment
declined.

"The continuing shedding of manufacturing jobs is really a
concern," Sylvester added. "You're sitting at 111,000 jobs lost
year-to-date (in manufacturing), so that's still a concern."

With the mixed reading, the week's most anticipated piece
of data did nothing to alter the outlook for domestic interest
rates. The Bank of Canada is still expected to lower its key
rate by 25 basis points to 2.75 percent at its next scheduled
announcement date on June 10.

A rise in oil prices to a new high above $126 a barrel
provided a positive backdrop for the Canadian dollar. However,
concerns about the sustainability of prices at that level, in
light of slowing global growth, prevented crude from being a
rallying point for the currency, Sylvester said.

Other domestic data showed the rising prices for oil and
natural gas exports boosted Canada's trade surplus to C$5.53
billion in March.

BONDS RISE

Bond prices rose, ignoring the higher headline numbers in
the economic data, as they were not seen altering the interest
rate outlook.

"You had a big move down in U.S. yields this week that
Canada really was somewhat insulated from, and I think it's
just a bit of a catch up for that," said Mark Chandler, fixed
income strategist at RBC Capital Markets.

Bond yields in prices move in opposite directions.

The two-year bond was up 5 Canadian cents at C$102.02 to
yield 2.731 percent. The 10-year rose 39 Canadian cents to
C$103.16 to yield 3.587 percent.

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

The 30-year bond added 98 Canadian cents to C$115.53, for a
yield of 4.082 percent. In the United States, the 30-year
treasury yielded 4.527 percent.

The three-month when-issued T-bill yielded 2.62 percent, up
from 2.60 percent at the previous close.