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TORONTO (Reuters) - The Canadian dollar closed at its lowest level in nearly a year versus a rallying U.S. dollar on Friday after data showed Canada shed more jobs in July than at any other time since the recession in 1991.
Bond prices rallied as the weak jobs data raised the odds the Bank of Canada will deliver at least one interest rate cut before the end of the year.
The Canadian dollar closed at C$1.0674 to the U.S. dollar, or 93.69 U.S. cents, down from C$1.0530 to the U.S. dollar, or 94.97 U.S. cents, at Thursday's close.
For the week, the currency closed down 3.8 percent. During the session, it hit a low of C$1.0696, its lowest level since August 17, 2007.
Most of the day's losses came at the open of the North American session after data showed Canada lost 55,000 jobs in July, far below expectations for a gain of 5,000 jobs.
The Canadian dollar had already been under pressure due to weakening commodity prices and a rallying greenback.
Canada is a major exporter of oil and other key commodities, many of which have seen sharp corrections in recent weeks.
While the Canadian dollar sold off well over 1 percent against the greenback, it could have been worse, said Shaun Osborne, chief currency strategist at TD Securities.
"The fact of the matter is that the Canadian dollar is not the worst performing currency of the day," he said.
"In terms of the G10 currencies, it's actually one of the better performing."
The greenback was higher nearly right across the board, making gains of 2 percent or more against the currencies of Norway, Sweden, Australia, New Zealand and the European Union.
As data from most developed global economies shows a slowing trend, the United States appears to be at the tail end of its economic slump.
Futures markets are starting to price in interest rate cuts in much of the developed world, while the next interest rate move by the U.S. Federal Reserve is expected to be a hike, and that is giving a boost to the greenback.
The futures market is now pricing in two 25 basis point rate cuts, to 2.50 percent, by the Bank of Canada by the end of the year.
Osborne said the U.S. dollar could drift a bit lower next week, but modest losses will likely be seen as a buying opportunity, leading to more greenback strength.
"It would suggest technically that over the next few months the potential to move up to the C$1.08 to C$1.10 range for (U.S.) dollar-Canada."
Bond prices rallied as the job loss numbers convinced dealers to start pricing in Bank of Canada interest rate cuts.
"You've got two-years around 2.72 (percent), which is more than a quarter below the Bank of Canada rate, so that gives you an idea of what the market thinks the Bank of Canada is going to be doing going forward," said Levente Mady, fixed income strategist at MF Global Canada in Vancouver.
Two-year bond yields reflect bond market expectations for the central bank's overnight rate.
The two-year bond rose 1 Canadian cent to C$101.81 to yield 2.712 percent. The 10-year bond climbed 27 Canadian cents to C$105.24 to yield 3.610 percent.
The yield spread between the two-year and 10-year bond was 109 basis points, up from 103 basis points.
The 30-year bond jumped 39 Canadian cents to C$116.04 for a yield of 4.051 percent. In the United States, the 30-year treasury yielded 4.544 percent.
The three-month when-issued T-bill yielded 2.48 percent, down from 2.53 percent at the previous close.
Editing by Rob Wilson