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Canadian Dollar Holds Near 5-Year High After U.S. Jobs Report
By Theresa Ebden
Toronto, May 2 (Bloomberg) -- The Canadian dollar held near a five-year high above 70 U.S. cents, as the latest unemployment report from the U.S. gave investors further reason to seek Canada's higher-yielding bonds.

Demand for Canada's currency will probably increase further as traders sell U.S. dollars to get out of U.S. investments and shift to Canadian assets, following this morning's report of 6 percent unemployment in the U.S., said Jack Spitz, director of foreign exchange, treasury and financial markets at National Bank of Canada. The unemployment rate is the highest in eight years an more than economists expected.

Canada's dollar has risen 11 percent this year as investors piled into the country's bonds and the central bank twice raised its benchmark lending rate. More news of a weaker U.S. economy provides further incentive to put money into Canada, whose economic growth outpaced all other Group of Seven industrialized nations last year.

``We could see a further move weaker on the U.S. dollar and then a further move stronger on the Canadian dollar,'' Spitz said. Lower U.S. employment is ``going to set the tone.''

The Canadian dollar fell to 70.41 U.S. cents at 8:56 a.m. in Toronto, from 70.46 cents yesterday. A U.S. dollar buys C$1.4202. Yesterday it crossed above 70 U.S. cents for the first time since April 23, 1998.

Companies in the U.S. lost 48,000 jobs last month, less than the 60,000 expected in a median forecast of 67 economists polled by Bloomberg News. The unemployment rate was expected to be 5.9 percent.

The Bank of Canada's target rate for overnight loans between banks is 3.25 percent, 2 percentage points higher than the comparable U.S. rate.

``I favor the Canadian dollar,'' said Louis Pestel, who oversees about 2 billion euros ($2.25 billion) in bonds at Lazard Freres Gestion in Paris. ``Canada will have the strongest growth of all the G-7 economies and they've diminished their debt.''

Canada's benchmark 5.25 percent coupon bond maturing in 2012 fell 17 cents to C$102.32, driving its yield up 3 basis point, or 0.03 percentage points, to 4.93 percent. Even with today's increase, the bond's yield has fallen 24 basis points in one month.

U.S. Treasury bonds dropped because the jobs report showed the U.S. economy lost fewer jobs in April than some economists forecast. Canadian bonds did not fall a much, so the yield difference between benchmark Canadian and U.S. government securities narrowed 2 basis points to 2.18 percentage points.

Last Updated: May 2, 2003 09:04 EDT