The Canadian dollar surged to its strongest level in two-weeks against the US dollar on Friday following dismal US labor market data that raised fresh doubts about whether the economy was ready for an interest rate hike this year. Oil prices that turned sharply higher following a report that showed US oil rig count declined for the fifth week also helped give the loonie a bump.
US payrolls excluding farming climbed by 142,000 in September, well below the 203,000 economists polled by Reuters had predicted. August figures, already below forecast, were revised sharply lower. The disappointing numbers sent the greenback down sharply, at one point hitting a two-week low, against a basket of key currencies including the loonie. "It's a confluence of a weaker US dollar, which is across the board, but also the rebound we've seen in commodities...That has helped underpin some momentum in CAD," said David Tulk, chief Canada macro strategist at TD Securities in Toronto.
The Canadian dollar ended at C$1.3164 to the greenback, or 75.96 US cents, firmer than the Bank of Canada's official close of C$1.3255, or 75.44 US cents on Thursday. The currency, which had stumbled to fresh 11-year lows earlier this week - touching C$1.3457 at one point on Tuesday, was up some 1.2 percent on the week. "It was rarified air, when you're up towards C$1.34. There were some sellers hanging out there and there were some technical factors," said Tulk, but added that the longer term trend was still for a weaker loonie.
Federal Reserve officials have been signaling that they planned to raise interest rates for the first time in nearly a decade by the end of the year, but Friday's weak employment numbers could fuel concerns that a global economic slowdown will hurt the US economy. TD has been calling for March 2016 hike, said Tulk. Looking ahead to next week, August trade data and Ivey PMI figures for Canada are due next Tuesday, while Canadian jobs data for September and the Bank of Canada's business outlook survey will be released next Friday.
Canadian government bonds were underperforming US Treasuries, with the Canada-US two-year bond spread narrowing to 7.60 basis points and the 10-year spread narrowing to 58.1 basis points. Canadian government bond prices were mostly across the maturity curve, with the two-year price up 4.5 Canadian cents to yield 0.505 percent and the benchmark 10-year rising 25 Canadian cents to yield 1.400 percent.