TORONTO, Aug 2 (Reuters) - The Canadian dollar clawed back some recent declines against its American counterpart on Friday as data showing a slowdown in U.S. jobs growth helped reduce an unfavorable interest rate differential for the currency.
The U.S. unemployment rate jumped to near a three-year high of 4.3% in July amid a significant slowdown in hiring, potentially making the economy vulnerable to a recession."
"Rate differentials are narrowing in the Canadian dollar's favour as the Federal Reserve is seen joining the Bank of Canada in an aggressive easing cycle," said Karl Schamotta, chief market strategist at Corpay.
The gap between U.S. and Canadian 2-year yields narrowed by 11 basis points to 69 basis points in favor of the U.S. rate as traders piled into bets the Federal Reserve would deliver a larger than normal half-point interest-rate cut in September, when it is expected to begin an easing cycle.
The Bank of Canada has already cut rates twice since June, moving in 25-basis point increments. Investors expect another cut in September, while the chances that the BoC would step up the easing pace to 50 basis points climbed to roughly 20%, swaps market data showed.
The Canadian dollar was trading 0.2% higher at 1.3850 per U.S. dollar, or 72.20 U.S. cents, after touching on Thursday its weakest intraday level since November at 1.3889. For the week, the loonie was down 0.1%.
Helping to cap gains for the loonie, the price of oil fell 3.8% to $73.44 a barrel as the U.S. data clouded the outlook for crude demand. Oil is one of Canada's major exports.
Wall Street tumbled and the U.S. dollar (.DXY), lost ground against a basket of major currencies.
The Canadian 10-year yield was down 10.5 basis points at 3.003%, after earlier touching its lowest level since May 2023 at 2.947%.
Reporting by Fergal Smith Editing by Marguerita Choy
