Canadian dollar near flat ahead of jobs data as risk appetite wanes

TORONTO (Reuters) - The Canadian dollar was little changed against its U.S. counterpart on Thursday as oil prices pared earlier gains and risk appetite waned, offsetting domestic data showing a solid gain for exports.

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch

At 4 p.m. (2000 GMT), the Canadian dollar CAD=D4 was trading at C$1.2969 to the greenback, or 77.11 U.S. cents, down 0.1 percent.

Losses for equity markets weighed on Canada’s currency, said David Bradley, director of foreign exchange trading at Scotiabank.

Canada’s commodity-linked currency tends to underperform when risk appetite falls.

U.S. stocks retreated after a round of disappointing labor market data clashed with the prospect of a more hawkish Federal Reserve, while rising tensions in the Korean peninsula provided additional pressure.

U.S. crude oil futures CLc1 settled 39 cents higher at $45.52 a barrel after a sharper-than-expected decline in crude oil and gasoline stocks, but were off the day's highs.

Oil is one of Canada’s major exports.

Canada’s exports and imports both hit record highs in May, reflecting continued economic strength ahead of a highly anticipated interest rate decision next week.

Expectations for a rate increase have been rising since top Bank of Canada officials asserted in June that a pair of 2015 interest rate cuts had done their job in cushioning the economy from collapsing oil prices.

Investors are “probably squaring up” their positions in the Canadian dollar ahead of Friday’s jobs data, Bradley said.

The June employment report will be the last major piece of domestic data before the rate announcement.

The currency traded in a range of C$1.2924 to C$1.2984. It touched on Tuesday its strongest since September at C$1.2912.

Still, foreign exchange strategists expect the loonie to weaken over the coming months as the recent rally driven by expectations for higher rates runs out of steam and lower oil prices weigh.

Separate domestic data showed that the value of Canadian building permits issued in May jumped 8.9 percent on plans for more construction of residential buildings, particularly in the red-hot market of Ontario.

Canadian government bond prices were lower across a steeper yield curve in sympathy with U.S. Treasuries and German Bunds, pressured by the prospect of hawkish global central bank policy.

The two-year CA2YT=RR fell 2 Canadian cents to yield 1.142 percent and the 10-year CA10YT=RR declined 36 Canadian cents to yield 1.834 percent.

The two-year yield touched its highest since September 2014 at 1.159 percent.

Reporting by Fergal Smith; Editing by Peter Cooney