* C$ ends at 98.20 U.S. cents * Canada economy adds 21K jobs, jobless rate at 8.2 pct * Bonds lower on rate hike expectations (Adds details) By Ka Yan Ng TORONTO, March 12 (Reuters) - The Canadian dollar advancedagainst the U.S. currency for an 11th straight session onFriday, hitting a 20-month high, after firmer than expectedCanadian employment data provided more evidence that economicrecovery is taking hold. The Canadian dollar was already firmer in the overnightsession, and after the jobs report it swiftly reached itshighest level since July 2008 -- C$1.0155, or 98.47 U.S. cents-- against the U.S. currency. Canada"s unemployment rate fell to 8.2 percent in Februaryfrom 8.3 percent in January as 20,900 more people found work inthe month. Economists surveyed by Reuters had forecast net jobgrowth of 20,000 jobs in February and an 8.3 percentunemployment rate. [ID:N12253705] "That was a lot more than a feather in the currency"s cap.The jobs report was unambiguous. It showed again that therecovery is truly on," said Doug Porter, deputy chief economistat BMO Capital Markets. The Canadian dollar finished at C$1.0183 to the U.S.dollar, or 98.20 U.S. cents, up from C$1.0243 to the U.S.dollar, or 97.63 U.S. cents, at Thursday"s close. The solid employment report also raised expectations thatthe Bank of Canada will raise interest rates. Yields onovernight index swaps, which trade based on expectations forthe central bank"s key policy rate, edged higher after thereport, showing the market saw credit tightening as slightlymore likely than before the data. Next week"s Canadian inflation data could be "potentiallycritical" for monetary policy, said Porter. "If we and theconsensus are wrong on that one, look out above for thecurrency," he said. Market expectations are for core inflation to cool to 1.7percent, and a surprise move higher toward the Bank of Canada"sinflation target of 2 percent could spell more strength in theCanadian dollar and amplify debate on credit tightening policy.ECONCA BONDS LOWER As Canadian dollar has been rallying in recent weeks onexpectations Canada could hike interest rates well ahead of theUnited States, government bond prices have been falling. The Bank of Canada has pledged to keep its key interestrate at its current ultra-low level of 0.25 percent until July,but the market suggests the chances are high the rate will bearound 1.0 percent by October.BOCWATCH "If we continue to see data surprising to the upside tothis extent that we"ve seen this morning I think there will beincreasing speculation that the Bank of Canada might goearlier. Or, if they start in July they might hike by more than25 basis points," said Matthew Strauss, senior currencystrategist at RBC Capital Markets. "That is slowly starting to filter through to the market,and therefore the negative reaction in the bond market and thepositive reaction from the Canadian dollar side." The move lower was supported by U.S. Treasuries, whichextended losses after data showed U.S. retail sales rose inFebruary. [US/] The two-year government bond CA2YT=RR was off 12 Canadiancents at C$99.84 to yield 1.583 percent, while the 10-year bondCA10YT=RR was down 30 Canadian cents at C$101.65 to yield3.538 percent. Canadian bonds mostly undperformed their U.S. counterparts,except in the 10-year issue. The difference between 10-yearyields narrowed 6.9 basis points to 15.8 basis points. (Reporting by Ka Yan Ng and Jennifer Kwan; editing by PeterGalloway)
Currencies
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