TORONTO, May 2 (Reuters) - The Canadian dollar fell against its U.S. counterpart on Friday after a U.S. employment report topped market expectations, entrenching the idea that the U.S. Federal Reserve may be nearing the end of its rate cutting cycle.
Canadian bond prices, with a lack of domestic data to influence direction, fell along with the larger U.S. market.
At 9:36 a.m. (1336 GMT), the Canadian dollar was at C$1.0202 to the U.S. dollar, or 98.02 U.S. cents, down from C$1.0193 to the U.S. dollar, or 98.11 U.S. cents, at Thursday’s close.
The currency had trundled higher in the overnight session, hitting C$1.0145 against the greenback, or 98.57 U.S. cents, reversing some of Thursday’s 1.2 percent decline.
It then gave back all of its gains after the U.S. jobs report showed that the U.S. economy shed 20,000 jobs in April.
Analysts had expected a loss of 80,000 U.S. jobs, according to Reuters Estimates.
The strong reading helped ramp up expectations the Fed may be coming to an end in its interest rate cutting cycle, making the greenback more attractive to investors.
The Fed cut its key lending rate by 25 basis points, to 2 percent on Wednesday and signaled a pause in its easing cycle that has seen it lop 325 basis points off the Fed funds rate since September.
The news wasn’t all bad for the Canadian dollar though, as it was helped overseas by a more positive outlook for the U.S. economy.
“Against the crosses, for instance against the euro, the yen, and the sterling, (the Canadian dollar) is gaining quite significantly, in line with the U.S. dollar,” said Matthew Strauss, senior currency strategist at RBC Capital Markets.
The United States absorbs more than 75 percent of Canadian exports.
Canadian bond prices fell along with the larger U.S. market, as investors shifted assets into riskier, but potentially more profitable equities markets.
“It’s reacting to the jobs numbers in the U.S.,” said Sheldon Dong, fixed income strategist at TD Waterhouse Private Investment.
“Stocks are on fire, and bonds are selling off.”
The overnight Canadian Libor rate LIBOR01 was 3.0267 percent, up from 2.9583 percent on Thursday.
Thursday’s CORRA rate CORRA= was 3.0096 percent, down from 3.0624 percent on Wednesday. The Bank of Canada publishes the previous day’s rate at around 9 a.m. daily.
The two-year bond fell 9 Canadian cents to C$101.94 to yield 2.779 percent. The 10-year bond slid 32 Canadian cents to C$102.99 to yield 3.609 percent.
The yield spread between the two- and 10-year bonds was 83.0 basis points, down from 83.3 at the previous close.
The 30-year bond slipped 50 Canadian cents to C$115.41 to yield 4.089 percent. In the United States, the 30-year Treasury yielded 4.565 percent.
The three-month when-issued T-bill yielded 2.64 percent, down from 2.65 percent at the previous close. (Reporting by John McCrank; Editing by Scott Anderson)