Canadian dollar recovers from five-week low as wage growth accelerates

TORONTO (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Friday, recovering from a five-week low, after domestic data showed a pickup in wages and pointed to a tightening labor market.

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/File Photo

The Canadian economy added 10,000 jobs in September, below forecasts for a 14,500 gain, data from Statistics Canada showed. But the pace of wage growth was the fastest in more than a year.

“At 2.2 percent, (wage growth) is above inflation, and it is a sign that the job market is tightening,” said Desjardins Capital Markets senior economist Jimmy Jean.

The Bank of Canada has pointed to labor market slack even after it raised interest rates twice in the last few months following rapid expansion in the domestic economy this year.

Still, Jean does not expect the central bank to hike again as soon as this month because of the Canadian dollar’s strength.

“It sounds like the Bank of Canada wants to take a bit of a pause and assess the impact (of rate hikes), particularly the impact on the currency,” Jean said.

Data on Thursday showed the country’s exports, which lose competitiveness as the currency strengthens, fell for the third straight month in August.

Chances of a rate hike in October edged up but remained below 20 percent after the data, the overnight index swaps market indicated. They had been nearly 40 percent before Governor Stephen Poloz signaled last week that a third hike was not imminent. BOCWATCH

At 9:21 a.m. ET (1321 GMT), the Canadian dollar CAD=D4 was up 0.1 percent at C$1.2556 to the greenback, or 79.64 U.S. cents.

The currency’s strongest level of the session was C$1.2542, while it touched its weakest since Aug. 31 at C$1.2600.

The gain for the loonie came despite lower prices for oil, one of Canada's major exports, and the U.S. dollar's .DXY slight rise against a basket of major currencies.

U.S. data showed a loss of jobs in September because of hurricanes but also a pickup in wage growth that boosted chances of a Federal Reserve rate hike in December.

U.S. crude CLc1 tumbled 2.48 percent to $49.53 a barrel.

Canadian government bond prices were lower across a steeper yield curve in sympathy with U.S. Treasuries. The two-year CA2YT=RR fell 4 Canadian cents to yield 1.547 percent, and the 10-year CA10YT=RR declined 35 Canadian cents to yield 2.146 percent.

Reporting by Fergal Smith; Editing by Lisa Von Ahn