TORONTO, Oct 5 (Reuters) - The Canadian dollar raced higher versus the U.S. currency on Friday and closed above par for the sixth straight session as strong domestic jobs data all but eliminated the chance for a Bank of Canada interest rate cut.
Bond prices turned sharply lower after the data and could not make up any ground as a Bank of Canada survey showed Canadian companies reported more labor shortages.
The Canadian dollar closed at 98.18 Canadian cents to the U.S. dollar, or US$1.018, up from Thursday's session close of 99.74 Canadian cents to the U.S. dollar, or US$1.0026.
During the North American session the Canadian currency rose to 97.86 Canadian cents to the U.S. dollar, or US$1.022, which marked the currency's highest level since November 1976.
Not only did data from Statistics Canada show employers hired three times more workers than predicted in September, but it also showed the unemployment rate in Canada unexpectedly fell to a 33-year low of 5.9 percent in September.
"It was a very strong number for Canada and continues the strong run of economic data that we're currently seeing. That warranted why the Canadian dollar, to a degree, is so strong against the U.S. dollar," said Gareth Sylvester, senior currency strategist at HFIX Plc in San Francisco.
"It makes sound sense for an investor to look at the Canadian dollar as a good investment opportunity."
A Reuters poll conducted after the jobs data showed the majority of Canada's primary securities dealers forecast the Bank of Canada will leave interest rates steady in 2007.
The jobs report stole the spotlight and gave the Canadian dollar an early boost that it never let go, but it was offered further support when a Bank of Canada Business Outlook Survey showed companies have had problems keeping up with demand.
The data will likely play a prominent role for the Bank of Canada, which will announce its next interest rate decision on Oct. 16. The central bank's overnight rate is at 4.50 percent, compared with the U.S. federal funds rate of 4.75 percent.
Canadian bond prices took a sharp turn lower given the upbeat domestic data, while a U.S. jobs report that also topped expectations did little to reverse the negative sentiment on bond prices.
"Bond prices didn't really crawl back at all from the initial reaction to the employment data," said Mark Chandler, fixed income strategist at RBC Capital Markets.
With no major Canadian data due out next week, Chandler suggested Canadian bond prices will likely follow the lead of the bigger U.S. treasuries market.
After that the Bank of Canada rate announcement on Oct. 16, the central bank's Monetary Policy Report, and consumer price index data later that week will dictate the tone for Canadian bond prices.
The two-year bond fell 33 Canadian cents to C$99.90 to yield 4.300 percent, while the 10-year bond dropped 89 Canadian cents to C$96.64 to yield 4.431 percent.
The yield spread between the two-year and 10-year bond moved to 13.1 basis points from 17.3 at the previous close.
The 30-year bond plunged C$1.40 to C$108.76 to yield 4.464 percent. In the United States, the 30-year treasury yielded 4.860 percent.
The three-month when-issued T-bill yielded 4.03 percent, up from 3.93 percent at the previous close.
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