Canadian dollar rallies as jobs surge crimps bets for BoC rate cut

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Friday, as bets for an interest rate cut by the Bank of Canada this year were slashed after domestic data showed a spike in jobs that surprised investors.

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 (CANADA - Tags: BUSINESS)

Employers added 55,900 jobs in February, which was the third month of outsized gains in the last four and exceeded the 20,000 jobs created in the United States for the same month. Analysts had forecast February job numbers to be flat in Canada.

“It was a great report card for the Canadian jobs market and it flies in the face of some of the other statistics that we’ve been seeing lately out of Canada,” said Scott Smith, managing partner at Viewpoint Investment Partners.

Data one week ago showed that Canada’s economy barely expanded in the fourth quarter.

Chances of an interest rate cut by December, which had climbed this week on a more dovish tone from the Bank of Canada, fell to less than 20 percent from about 40 percent before the jobs data, the overnight index swaps market indicated.

“I think if you look at this big picture it is an argument for the Bank of Canada to remain on the sidelines in the near term, rather than one for them to consider eases,” said Andrew Kelvin, senior rates strategist at TD Securities.

The Bank of Canada’s benchmark interest rate is at 1.75 percent.

At 4:04 p.m. (2104 GMT), the Canadian dollar was trading 0.4 percent higher at 1.3405 to the greenback, or 74.60 U.S. cents. The currency, which touched its weakest in more than two months at 1.3467 on Thursday, traded in a range of 1.3391 to 1.3466.

For the week, the loonie fell 0.8 percent.

Gains for the loonie on Friday came despite separate data showing that Canadian housing starts tumbled about 16 percent in February.

Also, the price of oil, one of Canada’s major exports, was pressured by signs of a slowing global economy. U.S. crude oil futures settled 1 percent lower at $56.07 a barrel.

Speculators have raised their bearish bets on the Canadian dollar, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed. As of March 5, net short positions had increased to 40,444 contracts from 39,177 in the prior week.

Canadian government bond prices were mixed across a flatter yield curve, with the two-year price down 5 Canadian cents to yield 1.651 percent.

Reporting by Fergal Smith; Editing by Susan Thomas and Tom Brown