The Canadian dollar sank to a three-week low versus a rising greenback on Friday as data showing the economy unexpectedly lost jobs in August firmed expectations that the Bank of Canada's next move will be an interest rate cut.
Canadian bond prices rose modestly on the weak data. The currency finished at C$1.1202 to the US dollar, or 89.27 US cents, down from C$1.1104, or 90.06 US cents, at Thursday's close.
Canada's economy lost 16,000 jobs in August and the jobless rate unexpectedly rose to 6.5 percent as employment in the ailing manufacturing sector sank to its lowest level in more than eight years, Statistics Canada said.
Coming on the heels of job losses in June and July, and other data showing deteriorating Canadian exports, the report helped push the Canadian dollar through the bottom end of the range it has occupied since mid August.
"It took a big number to push it past those levels," said Matthew Strauss, senior currency strategist at RBC Capital Markets, noting C$1.1140, or 89.77 US cents, was key break for the currency.
Also applying pressure to the Canadian dollar was the US dollar's broad surge as dealers positioned for the risk that the US Federal Reserve may have to raise interest rates again to keep inflation in check.
The Bank of Canada has left rates unchanged on its last two decision dates, and no move is expected until 2007. Recent weak economic indicators have many speculating that the bank may be in an easing mood when it eventually decides to move.
With the bank on hold, economic data suggesting weakness, and oil prices continuing to slide - US crude futures fell by more than $1 a barrel on Friday to $66.25 - Strauss said high base metal prices are the only thing keeping the currency from falling sharply versus the greenback.
Bond prices rose on the weak jobs data, outperforming rallying US treasuries, which widened US-Canada yield spreads. The 30-year bond jumped 40 Canadian cents to C$124.68 to yield 4.203 percent. In the United States, the 30-year treasury yield was 4.923 percent.