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TORONTO (Reuters) - The Canadian dollar charged higher on Friday as a strong domestic jobs report showed the economy hanging in despite turmoil in the U.S. housing sector and financial market disruption.
Domestic bond prices fell after the data, even as economists continued to call for further easing from the Bank of Canada.
The currency finished at 99.49 U.S. cents, valuing each U.S. dollar at C$1.0051, up from 98.49 U.S. cents, valuing a U.S. dollar at C$1.0153, at Thursday's close.
Statistics Canada said the economy added 42,600 jobs in November, or more than quadruple what as expected, while the jobless rate ticked up to 5.9 percent.
"We had the big selloff in (the U.S. dollar versus Canada) right after the employment numbers," said George Davis, chief technical strategist at RBC Capital Markets.
The report drove the Canadian dollar as high as 99.94 U.S. cents, but it then retreated.
A $2 per barrel drop in oil prices weighed on the currency, while the U.S. dollar initially fell, then climbed after U.S. payrolls data came in slightly above forecasts.
The Canadian jobs strength follows robust third-quarter economic growth, but also comes as the Bank of Canada's view of the fallout from the U.S. subprime mortgage crisis has soured.
The central bank cut its overnight rate by a quarter point to 4.25 percent earlier this week, and a Reuters poll on Friday showed a majority of primary dealers expect another cut in January, and possibly more easing after that.
The poll was taken after the jobs data was released.
"I think the bank is focused more on the inflation component and the uncertainty component right now that it is over the strength in the domestic economy," said Davis.
While the Canadian dollar has fallen about 10 percent since hitting US$1.10 a month ago, it is still up 16 percent on the year, thereby reducing inflation. The bank tries to keep inflation at the midpoint of a 1 percent to 3 percent range.
It has also exacted a toll on Canadian manufacturers who export goods to the United States.
Typically, rate cuts pull the Canadian dollar lower.
Canadian bond prices fell on the jobs data, and eased further during the session as the U.S. payrolls data eased expectations of a half-point U.S. interest rate cut next week.
Economists now expect the U.S. Federal Reserve will trim rates by a quarter point on December 11.
The Bank of Canada's next rate-setting will be on January 22.
The overnight Canadian Libor rate LIBOR01 was at 4.2200 percent, down from 4.2217 percent on Thursday.
Thursday's CORRA rate CORRA= was 4.2611 percent, down from 4.2645 percent.
The two-year bond slid 21 Canadian cents to C$100.99 to yield 3.723 percent. The 10-year bond declined 53 Canadian cents to C$99.74 to yield 4.033 percent.
The yield spread between the two-year and 10-year bond moved to 31.0 basis points from 35.4 at the previous close.
The 30-year bond dropped 76 Canadian cents to C$113.70 to yield 4.186 percent. In the United States, the 30-year treasury yielded 4.570 percent.
The three-month when-issued T-bill yielded 3.89 percent, up from 3.88 percent at the previous close.
Reporting by Cameron French