TORONTO (Reuters) - The Canadian dollar was higher versus the U.S. dollar on Thursday as oil prices firmed after a recent retreat, but the move was capped ahead of key domestic jobs data due out on Friday.
Domestic bond prices, with no Canadian data to influence a move, were mostly higher alongside the bigger and more influential U.S. Treasury market.
At 9:45 a.m. EDT, the Canadian unit was at C$1.0591 to the U.S. dollar, or 94.42 U.S. cents, up from C$1.0610 to the U.S. dollar, or 94.25 U.S. cents, at Wednesday's close.
Another boost for the Canadian dollar was a spillover of buying from the previous session when the Bank of Canada did as expected and left its key rate steady but also gave a statement that gave no sign that it would ease any time this year.
With oil prices back above $110 a barrel after some recent weakness, the Canadian currency was also benefiting from a positive commodity backdrop since Canada is considered a key exporter of oil.
"This sort of shows that the underlying tone for the Canadian dollar is not bearish despite what we've seen with the Canadian dollar versus the U.S. dollar over the past several weeks," said David Watt, senior currency strategist at RBC Capital Markets.
"Even before the Bank of Canada yesterday there seemed to be certainly a bearish tone developing and the Bank of Canada just wiped that all away."
The Bank of Canada left its key rate at 3 percent and signaled that it was in no hurry to cut rates any time soon, even though it acknowledged that the U.S. economic outlook could worsen.
That news gave an immediate boost to the Canada currency. It rallied again overnight to C$1.0542 to the U.S. dollar, or 94.86 U.S. cents, as markets overseas reacted to the Bank of Canada's statement.
Canadian bond prices were bouncing around the break-even level after a U.S. report confirmed a steadily weakening labor market and did little to suggest the Federal Reserve can hike interest rates anytime soon.
The Canadian bond market was lagging the gains being recorded by bonds south of the border.
"The numbers we're seeing out of the U.S. this morning have been encouraging for the bond market, particularly the shorter end," said Michael Gregory, senior economist at BMO Capital Markets.
"It's all building the story here that the Fed is not going to be in any hurry to raise rates and we could be at 2 percent for quite a while and I think the short end of the bond market is beginning to realize that a bit."
The Canadian bond market will get a dose of domestic data Friday as the jobs report is expected to show Canada created 8,000 jobs in August while the unemployment rate rose to 6.2 percent from 6.1 percent.
The two-year bond rose 1 Canadian cent to C$110.08 to yield 2.720 percent, while the 10-year dropped 5 Canadian cents to C$106.25 to yield 3.486 percent.
The yield spread between the two-year and 10-year bond was 74.6 basis points, down from 75.1 basis points at the previous close.
The 30-year bond gained 4 Canadian cents to C$117.24 for a yield of 3.986 percent. In the United States, the 30-year treasury yielded 4.308 percent.
The three-month when-issued T-bill yielded 2.46 percent, down from 2.48 percent at the previous close.
Editing by Frank McGurty