The Canadian dollar weakened against its US counterpart on Friday as a fall in oil prices and a global shift towards less risky assets hurt the currency, cancelling out earlier gains from a robust domestic jobs report. Crude prices settled down 3 percent, while safe-haven assets such as sovereign debt advanced, with investors staying cautious due to uncertainty over US interest rate hikes and the impending vote on Britain's membership in the European Union.
"It was a big payroll number, much better than expected from a number of different perspectives," said Jack Spitz, managing director of foreign exchange at National Bank Financial. "But it came amidst an erosion in investor confidence led by a drop in equity and commodity prices...so all in all the global drivers that are based on risk are having as much influence, if not more so, on the value of the Canadian dollar," he said.
Canada added far more jobs than expected in May as hiring picked up in construction and manufacturing, although a drop in the unemployment rate to a 10-month low stemmed from fewer people looking for work. The Canadian dollar settled at C$1.2757 to the greenback, or 78.39 US cents, weaker than Thursday's close of C$1.2713, or 78.66 US cents. It gained 1.4 percent for the week.
The currency's strongest level of the session was C$1.2660, touched soon after the jobs data, while its weakest was C$1.2780. On Wednesday, the loonie touched a five-week high at C$1.2655. Speculators cut bullish bets on the loonie, Commodity Futures Trading Commission data showed on Friday. Net long Canadian dollar positions fell to 21,537 contracts in the week ended June 7 from 26,259 contracts in the prior week, which was the largest net long position since February 2013.
National's Spitz said more long Canadian dollar positions will likely be pared ahead of the Brexit vote due on June 23. "Heightened volatility is not an environment that typically equates to strength in the Canadian dollar," he said. "We see Canada in many respects as a barometer for global risk."
Canadian government bond prices rose across the maturity curve. The two-year price rose 4.5 Canadian cents to yield 0.493 percent and the benchmark 10-year climbed 62 Canadian cents to yield 1.119 percent, touching its lowest since February 25. The curve flattened, as the spread between 2-year and 10-year yields narrowed to 62.3 basis points, indicating outperformance for longer-dated maturities.