TORONTO (Reuters) - Canada's dollar rallied against the greenback on Friday and touched its highest level in a week as upbeat Canadian and U.S. jobs data helped spark demand for riskier assets.
The Canadian dollar was given an early boost after a report showed the Canadian economy unexpectedly added 27,100 jobs in August even though the unemployment rate rose to an 11-1/2 year high of 8.7 percent.
The currency's rally continued after data from the United States, Canada's biggest trading partner, showed employers cut fewer-than-expected jobs in August.
The reports were enough to send the Canadian dollar as high as C$1.0824 to the U.S. dollar, or 92.39 U.S. cents, shortly after midday, which marked its highest level since August 28.
"Obviously the initial culprit is the very strong Canadian jobs numbers that have lent a positive tone to Canada," said Eric Lascelles, chief economics and rates strategist TD Securities. "Canada was one of the stronger performers of the day, but just about everybody is up versus the U.S. dollar."
Activity during the second half of the session was quiet as many traders left early ahead of the long weekend. Financial markets in Canada and the U.S. will be closed Monday for Labor Day.
The Canadian dollar closed at C$1.0867 to the U.S. dollar, or 92.02 U.S. cents, up from C$1.1033 to the U.S. dollar, or 90.64 U.S. cents, at Thursday's close. It ended the week with a gain of 0.5 percent.
The rise in the Canadian dollar versus the greenback came alongside a number of the crosses, or overseas currencies. But it still managed to outperform most of them after having not participated in rallies earlier this week.
"I look at Canada over the last week and it's actually been a middle of the pack player," said Lascelles. "So I think there has been some late-week scrambling to help keep the Canadian currency abreast with its peers because there was a significant lag earlier in the week."
A key event next week is the Bank of Canada's monetary policy announcement on Thursday, where the bank is expected to stick to its conditional pledge to keep its benchmark interest rate at the current near-zero level.
Still, traders will keep a close eye on the statement that accompanies the rate announcement for any clues into the bank's thinking on the domestic economy and hints on when it could move rates next.
Canadian bond prices ended down across the curve as the mix of upbeat data and a rally in North American equities combined to sap demand for more secure government debt.
The S&P/TSX composite index ended up 0.88 percent at 11,017.47, while the Dow Jones industrial average rallied 1.03 percent to 9,441.27.
After the jobs data another report showed purchasing by Canadian businesses expanded in August at a faster pace than had been expected, adding to evidence that the economy may have started to rebound.
"The economic data is the pretty consistent story there," said Lascelles. "But I've been shouting for all to hear that North American bonds are extremely rich at current levels so I think there is just and natural instinct to allow (yields) to drift higher."
The two-year bond dropped 6 Canadian cents to C$99.45 to yield 1.283 percent, while the 10-year bond shed 31 Canadian cents to C$103.06 to yield 3.377 percent.
The 30-year bond slipped 40 Canadian cents to C$118.60 to yield 3.896 percent.
Canadian bonds outperformed their U.S. counterparts across much of the curve. The Canadian 30-year bond yield was about 37.9 basis points below its U.S. counterpart, compared with 28.5 basis points on Thursday.
Editing by Jeffrey Hodgson