TORONTO — The Canadian dollar strengthened to a two-week high against its U.S. counterpart on Friday as investors dialed back bets for interest rate cuts by the Bank of Canada in the coming months following stronger-than-expected domestic jobs data. The Canadian economy gained 41,400 jobs in April, exceeding expectations for an increase of 20,000, while the jobless rate stayed at 5.0% for a fifth consecutive month, Statistics Canada data showed.
“Another blockbuster Canadian jobs number,” said Karl Schamotta, chief market strategist at Corpay.
“It smashed expectations and pointed to resilience in the underlying economy, and will almost certainly narrow interest rate differentials against the U.S. on the front of the curve by lowering the likelihood of rate cuts by the Bank of Canada and pushing those into 2024 at the earliest.”
Money markets are still pricing in an interest rate cut by the BoC this year, but chances of a cut as soon as October fell to about 50% from 70% before the data.
On Thursday, BoC Governor Tiff Macklem said that the bank is ready to tighten further if Canadian inflation gets stuck significantly above target. The bank’s benchmark rate has been on hold at a 15-year high of 4.50% since January.
The Canadian dollar was trading 0.6% higher at 1.3451 to the greenback, or 74.34 U.S. cents, its strongest since April 20. For the week, it was on track to advance 0.7%.
U.S. job growth also beat expectations in April. Canada sends about 75% of its exports to the United States, including oil.
The price of oil was up 3.8% at $71.19 a barrel, clawing back some recent declines.
Canadian government bond yields were higher across the curve, with the 10-year up 10.4 basis points at 2.904%. (Reporting by Fergal Smith; editing by Jonathan Oatis)