Canadian dollar's rally loses steam ahead of jobs data

By Fergal Smith

TORONTO (Reuters) -The Canadian dollar edged lower against its U.S. counterpart on Wednesday, with the currency consolidating its recent gains as investors turned attention to the release of U.S. and Canadian employment data over the coming days.

The loonie was trading 0.2% lower at 1.3460 to the greenback, or 74.29 U.S. cents, after touching on Tuesday its strongest intraday level since Feb. 16 at 1.3406.

It has been a "great run" for the currency in the last two weeks, said Amo Sahota, director at Klarity FX in San Francisco.

"I think traders are realizing that they may have been right but a tad overzealous," Sahota added. "Going into the long weekend and labor reports it would be better to allow for some consolidation."

Canada's employment report for March, due on Thursday, is expected to show the economy added 12,000 jobs. U.S. employment data is set for release on Friday.

The Canadian dollar is set to rally over the coming year as an expected slowdown in economic activity stops short of a hard landing for the economy, a Reuters poll showed.

Data on Wednesday showed that Canada posted a smaller-than-expected trade surplus of C$422 million ($313 million) in February, as both exports and imports recorded widespread declines.

The price of oil, one of Canada's major exports, settled 0.1% lower at $80.61 a barrel as the market weighed worsening economic prospects against expectations of U.S. crude inventory declines and plans by OPEC+ producers to reduce output.

Canadian government bond yields rose across a steeper curve following the auction of 10-year bonds.

The 10-year was up 2.9 basis points at 2.800%, while the gap between it and its U.S. equivalent narrowed by 6.8 basis points to about 50 basis points in favor of the U.S. bond. That was the smallest gap since Jan. 10.

(Reporting by Fergal Smith; Editing by Paul Simao and Andrea Ricci)