C$ falls as trade spat with U.S. raises 'downside risk' for currency

TORONTO (Reuters) - The Canadian dollar fell against its broadly stronger U.S. counterpart on Friday as a trade squabble between Canada and the United States offset stronger-than-expected domestic jobs data, with the loonie giving back much of this week’s gains.

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

Canada will slap retaliatory tariffs on C$3.6 billion worth of U.S. aluminum products after the United States said it would impose punitive measures on Canadian aluminum imports, Canadian Deputy Prime Minister Chrystia Freeland said.

“The potential for border skirmishes to turn into a wider trade war is increasing downside risk for the Canadian dollar, particularly ahead of the November election in the United States,” said Karl Schamotta, chief market strategist at Cambridge Global Payments.

The U.S. presidential election is set for Nov. 3.

“It’s very clear that the tariffs applied by the United States have been applied in the pursuit of a political objective, not an economic objective and that makes it more dangerous,” Schamotta said.

Canada added 418,500 jobs in July, which was more than the gain of 400,000 that analysts expected, while separate July data showed that Canadian purchasing activity expanded at its strongest pace in more than two years.

The Canadian dollar CAD= was trading 0.6% lower at 1.3360 to the greenback, or 74.75 U.S. cents. For the week, the loonie gained 0.3%.

The U.S. dollar .DXY rebounded on Friday against a basket of major currencies. U.S. job growth surpassed low expectations and investors eyed ongoing stimulus talks in Washington.

U.S. crude oil futures CLc1 settled 1.7% lower at $41.22 a barrel on worries that recovery of demand would slow due to a resurgence of coronavirus cases. Oil is one of Canada's major exports.

Canadian bond yields rose across much of a steeper curve, with the 10-year CA10YT=RR up 1.8 basis points at 0.480%.

Reporting by Fergal Smith; Editing by Steve Orlofsky and Paul Simao