Canadian dollar falls as jobs miss keeps jumbo rate cut in play

TORONTO (Reuters) – The Canadian dollar weakened against its U.S. counterpart on Friday as oil prices fell and domestic employment data supported bets for another outsized interest rate cut by the Bank of Canada next month.

The loonie was trading 0.5% lower at 1.3925 to the U.S. dollar, or 71.81 U.S. cents, moving back in reach of the two-year low it hit on Nov. 1 at 1.3959.

Canada added 14,500 jobs in October, fewer-than-expected, and wages of permanent employees rose as the economy struggled to absorb the slack built up due to a rapidly increasing labor force.

“Odds on a 50-basis-point rate cut at the Bank’s December meeting are holding just above coin-toss levels, and the rate differential between U.S. and Canadian ten-year bond yields remains extremely wide relative to history, helping put sustained pressure on the loonie,” Karl Schamotta, chief market strategist at Corpay, said in a note.

Investors see a roughly 60% chance the BoC would cut on Dec. 11 by a larger than usual half percentage point for a second straight meeting.

The gap between the Canadian 10-year yield and the U.S. equivalent was trading at about 112 basis points in favor of the U.S. note, nearly the biggest gap in LSEG data going back to 1994.

For the week, the loonie was up 0.2%, after it clawed back on Thursday some of the losses it sustained after the outcome of the U.S. presidential election.

Republican President-elect Donald Trump has proposed sweeping tariffs on imported goods. Canada sends about 75% of its exports to the United States, including oil.

The price of oil was trading nearly 3% lower at $70.23 a barrel, while the U.S. dollar notched gains against a basket of major currencies.

Canadian bond yields were mixed across a flatter curve. The 10-year was down 2.2 basis points at 3.195%.

(Reporting by Fergal Smith; Editing by Alistair Bell)

By Fergal Smith