C$ notches strongest gain in 3 months on jobs data

TORONTO: The Canadian dollar posted its biggest gain in nearly three months against its U.S. counterpart on Friday, after stronger-than-expected domestic jobs data fueled expectations for further Bank of Canada interest rate hikes early next year.

Canadian employment rose 79,500 in November, adding to robust gains in 2017. The November increase was much stronger than the 10,000 jobs gain that economists had expected, while wage growth accelerated to 2.7 percent year-on-year from 2.4 percent.            

"The labor miracle in Canada continues," said Derek Holt, head of capital markets economics at Scotiabank. "The broad takeaway is the wage and price cycle continues to turn more hawkish."

Investors expect the Bank of Canada to leave its benchmark interest rate steady at 1 percent at next week's policy decision. But chances of a hike in January rose to nearly 60 percent from less than 50 percent before the data, the overnight index swaps market indicated.          

The central bank raised rates in July and September for the first time in seven years but has since turned more cautious on the outlook for the economy.

Separate data showed that Canadian economic growth slowed to 1.7 percent in the third quarter, coming off a hot first half of the year.            

For September, the economy grew 0.2 percent, topping expectations and suggesting modest momentum heading into the fourth quarter.

At 9:24 a.m. ET (1424 GMT), the Canadian dollar was trading at C$1.2752 to the greenback, or 78.42 U.S. cents, up 1.1 percent, its strongest gain since Sept. 6.

The currency touched its strongest since Monday at C$1.2742.     Adding to support for the loonie, U.S. crude        prices were up 1.53 percent at $58.28 a barrel after major producers agreed to continue reining in output until the end of next year.

Oil is one of Canada's major exports. The U.S. dollar edged higher against a basket of

major currencies even as a delay in voting on a Republican tax overhaul kept investors on edge about its passage.            

Canadian government bond prices were lower across a flatter yield curve, with the two-year price down 11.5 Canadian cents to yield 1.493 percent and the 10-year falling 27 Canadian cents to yield 1.918 percent.

The gap between Canada's 2-year yield and its U.S. equivalent narrowed by 6.1 basis points to a spread of -29.8 basis points. On Thursday, the spread had touched its widest in five months at -35.9 basis points.