TORONTO (Reuters) - The Canadian dollar sunk against its surging U.S. counterpart on Friday as a slump in domestic jobs and a record-wide Canadian trade deficit contrasted with a robust U.S. jobs report.
The divergent data pushed the loonie, as Canada's currency is colloquially known, to its weakest level against the greenback in more than a week, reversing a short-term trend of moderate strength.
Canada's trade gap unexpectedly widened to a record deficit in June as export growth, key to the Bank of Canada's outlook, disappointed and imports of vehicles and parts jumped.
"For a small, open economy like ours that typically generates a lot of growth from the external economy, this is just not good news," said Shaun Osborne, chief currency strategist at Scotiabank.
In addition, the Canadian economy unexpectedly shed 31,200 jobs last month, pushing the unemployment rate up to 6.9 percent.
The Canadian dollar CAD=D4 ended the day trading at C$1.3164 to the greenback, or 75.96 U.S. cents, much weaker than Thursday's close of C$1.3022, or 76.79 U.S. cents.
It spiked to its weakest since July 27 at C$1.32 shortly after the economic data was released.
"It's a nightmare scenario for the Canadian dollar, essentially a robust U.S. report and a pair of ugly Canadian numbers. It doesn't get much worse than this," said Doug Porter, chief economist at BMO Capital Markets.
The U.S. dollar jumped as U.S. employment increased more than expected in July and wages picked up, raising the probability of an interest rate hike from the Federal Reserve this year. [FRX/]
The implied probability of a Bank of Canada rate cut rose to 17 percent after the Canadian data, overnight index swaps data showed. It was 12 percent before the data. BOCWATCH
Speculators reduced bullish bets on the loonie for the first time in six weeks, Commodity Futures Trading Commission data showed. Net long Canadian dollar positions fell to 17,758 contracts in the week ended August 2 from 23,180 contracts in the prior week.
Canadian government bond prices were mixed across the maturity curve, with the two-year CA2YT=RR bond up 3.5 Canadian cents to yield 0.52 percent and the benchmark 10-year CA10YT=RR falling 23 Canadian cents to yield 1.069 percent.
The yield on Canada's two-year bond fell 9.7 basis points further below the yield on its U.S. equivalent, leaving the spread at -20.6 basis points.
The spread between Canadian 2-year and 10-year yields was 4.3 basis points wider at 54.9 basis points.
Additional reporting by Fergal Smith; Editing by Meredith Mazzilli