C$ posts weekly decline as U.S. jobs data rattles investors

BY Reuters | ECONOMIC | 12/02/22 10:11 AM EST

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Friday as domestic jobs data caused few surprises, while a stronger-than-expected U.S. jobs gain ran counter to hopes that the Federal Reserve would soon slow the pace of rate hikes.

The loonie was trading 0.4% lower at 1.3485 to the greenback, or 74.16 U.S. cents, after trading in a range of 1.3421 to 1.3520. For the week, it was down 0.8%.

"The strong U.S. employment data has lent some support to the USD but has caused U.S. equities to sell off on the prospect of higher rates," said George Davis, chief technical strategist at RBC Capital Markets.

"We have seen persistent CAD selling on the crosses this week," said Davis, adding that these flows, against currencies such as the euro, sterling and the yen, weighed on the Canadian dollar.

U.S. stock indexes fell as the U.S. jobs data reignited investor concerns about the Federal Reserve continuing on its path of aggressive monetary policy tightening.

Canada added 10,100 jobs in November, broadly in line with the forecast gain of 5,000, while the jobless rate fell to 5.1%.

Money markets expect the Bank of Canada to raise interest rates by 25 basis points next Wednesday, with chances of a larger move increasing to roughly 25% from 15% before the data.

Another headwind for the loonie was a dip in oil prices ahead of a meeting of the Organization of the Petroleum Exporting Countries and its allies on Sunday. U.S. crude oil futures settled 1.5% lower at $79.98 a barrel.

Canadian government bond yields eased across a more deeply inverted curve. The 2-year dipped nearly one basis point to 3.786%, while the 10-year was down 3.8 basis points at 2.796%.

(Reporting by Fergal Smith; Editing by Andrea Ricci and Deepa Babington)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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