Canadian dollar underperforms G10 peers as jobs data clips rate hike bets

Kitco Media
By Reuters
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Reuters
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TORONTO, May 8 (Reuters) - The Canadian dollar weakened against all the other Group of 10 ‌currencies on Friday as domestic data showed a surprise decline in employment, spurring investors to reduce bets on Bank of Canada interest rate hikes this year.

The loonie was trading 0.2% lower at 1.3690 to ​the U.S. dollar, or 72.99 U.S. cents, after touching its weakest intraday level ​since April 29 at 1.3710. It was the only G10 currency to ⁠lose ground against the greenback.

For the week, the loonie was down 0.7%, after four ​straight weekly gains.

Canada's economy lost 17,700 jobs in April and the unemployment rate rose to ​a six-month high of 6.9%, indicating continued weakness in a labor market that has struggled in the face trade uncertainty. Analysts had predicted a jobs gain of 15,000.

"The Canadian dollar is ratcheting lower as traders ​pull back on monetary tightening expectations previously incorporated in rate curves, and differentials tilt ​in the greenback’s favour," Karl Schamotta, chief market strategist at Corpay, said in a note.

"We think signs ‌of stability ⁠will emerge in the coming months as trade uncertainties are reduced and downward momentum in housing markets begins to slow, but today’s data points to a long and difficult road ahead for the Canadian economy."

Investors were pricing in 38 basis points of tightening from the ​BoC by December, ​down from 44 basis ⁠points before the data.
Last week, the central bank said that if oil prices stayed high and began pushing up inflation, it might ​have to respond with consecutive rate hikes.

U.S. employment data, in contrast, ​pointed to ⁠labor market resilience which reinforced expectations the Federal Reserve would leave interest rates unchanged for some time.

The price of oil rose 0.9% to $95.64 a barrel, a day after renewed fighting near the ⁠Strait of ​Hormuz raised new questions about the ceasefire between the ​United States and Iran. Oil is one of Canada's major exports.

Canadian bond yields fell across a steeper curve, with ​the 10-year down 4.1 basis points at 3.483%.

Reporting by Fergal Smith, Editing by Nick Zieminski

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