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TORONTO (Reuters) - Canada's dollar shot up one U.S. cent on Friday after a stronger-than-expected jobs report showed a record number of Canadians returned to work in April, adding pressure on the Bank of Canada to raise rates soon.
The currency firmed to a session high of C$1.0338 to the U.S. dollar, or 96.73 U.S. cents, from about C$1.0448, or 95.71 U.S. cents just before the data's release.
Statistics Canada on Friday said the economy added 108,700 jobs in the month, the highest since Statscan began tracking the data in 1976 and exceeding even the most upbeat estimate in a Reuters poll which yielded a median forecast of 25,000 new jobs.
"In more normal times this would be a huge lift for the Canadian dollar. We've seen a bit of a lift for the Canadian dollar, but obviously we're not normal times," said Craig Wright, chief economist at Royal Bank of Canada.
"People are still looking to developments in Europe to take direction and it's the old risk-on and risk-off trade. If people become more comfortable with risk the environment for another run at parity for Canada is there."
At 7:39 a.m. EDT, the Canadian currency was at C$1.0380 to the U.S. dollar, or 96.34 U.S. cents, higher than its close on Thursday of C$1.0523 to the U.S. dollar, or 95.03 U.S. cents.
Yields on overnight index swaps, which trade based on expectations for the central bank's key policy rate, jumped on Friday, showing the market saw tightening as more likely than before the data..
Last month, the Bank of Canada took a first step toward tightening monetary policy by removing a commitment to keep rates at a rock-bottom 0.25 percent until the end of June. Most market players now expect it to raise rates to 0.50 percent on June 1.
Supporting the currency's move higher on Friday morning was firmer oil prices, which edged toward $78 a barrel, and U.S. stock index futures, which signaled a rebound after a steep fall in the previous session.
Market watchers will now eye April's U.S. non-farm payrolls data, with economists polled by Reuters expecting that employers added 200,000 jobs last month after a 162,000 increase in March. The data is due at 8:30 a.m..
The currency's move higher comes a day after Canada's dollar plunged on Thursday, hitting a near 3-month low against the greenback in its steepest intraday drop since the market crash of 2008, on fears Greece's debt crisis may spread to other euro zone countries and threaten the economic recovery.
Canadian government bond prices slumped across the curve, as the strong domestic jobs data hinted at the higher rate environment.
The two-year government bond fell 21 Canadian cents to C$99.23 to yield 1.883 percent, while the 10-year bond dropped 38 Canadian cents to C$99.77 to yield 3.528 percent.
Reporting by Jennifer Kwan; Editing by Jeffrey Hodgson& Theodore d'Afflisio