The Canadian dollar rallied to a two-week high against the greenback on Friday, climbing more than a penny, after an upside surprise in US job data increased expectations Canadian interest rates will rise next week. US employment fell for a third straight month in August, but the drop was only half the anticipated loss, and private hiring growth - considered a better gauge of labour market health - beat consensus.
US service sector activity data came in weaker than forecast, but at a level that still qualifies as expansion rather than contraction. The data from Canada's largest trading partner drove the Canadian dollar as high as C$1.0384 to the US dollar, or 96.30 US cents, its strongest level since August 20.
"The market really took it from a bullish point of view so we have seen stocks rally and government bonds sell off and we've seen generally risk currencies do fairly well," said Tom Nakamura, fixed-income portfolio manager at AGF Investments. In a note to clients, Doug Porter, deputy chief economist at BMO Capital Markets, said it wasn't every day that the market greets a "not-horrendous" jobs report with open arms.
"It's nothing to write home from summer camp about, but the gains are consistent with an economy that is still grinding forward," the note said. The Canadian dollar ended the North American session at C$1.0393 to the US dollar, or 96.22 US cents, up sharply from Thursday's close at C$1.0535 to the US dollar, or 94.92 US cents. It gained 1.3 percent for the week. Investors have feared sustained weakness in the United States could spill over to Canada's economy, which has dragged on the currency in recent weeks.