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TORONTO (Reuters) - The Canadian dollar strengthened slightly against its U.S. counterpart on Friday after solid trade data made a Bank of Canada rate cut less likely, even as a surge in U.S. jobs boosted Federal Reserve rate hike prospects.
Canadian exports rose for a third month, including increased trade with the U.S. that supports hoped for reorientation of Canada's economy toward the non-resource sector.
"This is the sort of data they (the Bank of Canada) want to see," said Andrew Kelvin, senior rates strategist at TD Securities. "This would make all else equal a rate cut less likely."
The implied probability of a rate cut this year was little changed since before the data, but has fallen to 42 percent from 80 percent last week when Finance Minister Bill Morneau said the government would stick to plans to stimulate the economy in a March 22 federal budget. BOCWATCH
The currency gyrated as the market also digested U.S. data.
U.S. payrolls surged in February, the clearest sign yet of labor market strength that could ease fears the economy may be heading into recession.
U.S. crude CLc1 prices were down 0.14 percent to $34.52 a barrel as gains this week were slightly pared. [O/R]
At 9:40 a.m. EST (1440 GMT), the Canadian dollar CAD=D4 was trading at C$1.3390 to the greenback, or 74.68 U.S. cents, stronger than Thursday's close of C$1.3396, or 74.65 U.S. cents.
The currency's strongest level of the session was C$1.3390, while its weakest was C$1.3472. On Thursday, it touched its strongest since Dec. 7 at C$1.3372.
Canada posted a smaller-than-expected trade deficit of C$655 million ($489 million) in January from a revised C$631 million shortfall in December. Exports rose 1 percent, reaching a record C$46.0 billion, while export volumes surged 3.6 percent.
Canadian government bond prices were lower across the maturity curve, with the two-year CA2YT=RR price down 2 Canadian cents to yield 0.522 percent and the benchmark 10-year CA10YT=RR falling 17 Canadian cents to yield 1.24 percent.
The Canada-U.S. two-year bond spread was 1.2 basis points lower at -34.4 basis points, while the 10-year spread was 1.6 basis points lower at -62.4 basis points, as U.S. Treasuries underperformed.
Editing by Bernadette Baum