Canadian dollar falls from 3-week high as jobs data clips rate hike bets

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Friday, with the currency pulling back from an earlier three-week high after domestic jobs data tempered expectations for a Bank of Canada interest rate hike this month.

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. The Canadian dollar strengthened against the U.S. dollar on Friday after Canadian CPI data showed an increase in core inflation. REUTERS/Mark Blinch

At 4 p.m. EDT, the Canadian dollar CAD=D4 was trading 0.2 percent lower at C$1.2792 to the greenback, or 78.17 U.S. cents.

The loonie touched its strongest intraday since April 20 at C$1.2730. For the week, it rose 0.4 percent.

“The weak jobs data took a little steam out of the rally,” said Rahim Madhavji, president at Knightsbridge Foreign Exchange. “It leads to a lesser likelihood of a Bank of Canada rate hike.”

The decline of 1,100 jobs in April was well short of economists’ forecasts for an increase of 17,400. But full-time jobs rose by nearly 29,000 and wage growth accelerated.

Chances of an interest rate hike at the May 30 announcement slipped to 42 percent from nearly 50 percent before the jobs data, the overnight index swaps market indicated. BOCWATCH

The price of oil, one of Canada’s major exports, fell as it looked likely that U.S. allies would push to maintain a deal with Iran, which could keep that country’s crude exports on global markets.

U.S. crude CLc1 prices settled 0.9 percent lower at $70.70 a barrel.

Still, the loonie is expected to strengthen over the coming year as a clearer outlook for the North American Free Trade Agreement opens the door to more Bank of Canada interest rate hikes, a Reuters poll of currency strategists showed.

Senior American, Canadian and Mexican officials ended a week of talks without a deal to modernize NAFTA, agreeing instead to resume negotiations soon.

Speculators have cut bearish bets on the Canadian dollar, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed. As of May 8, net short positions had fallen to 23,861 contracts, the smallest since March, from 27,535 a week earlier.

Canadian government bond prices were higher across a flatter yield curve, with the two-year CA2YT=RR up 2 Canadian cents to yield 1.967 percent and the 10-year CA10YT=RR rising 17 Canadian cents to yield 2.377 percent.

The 10-year yield had touched its highest intraday since May 2014 at 2.417 percent.

Reporting by Fergal Smith; Editing by Bernadette Baum and Rosalba O’Brien