C$ posts one-month high as jobs gain cements steady rate outlook

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar strengthened to a one-month high against its U.S. counterpart on Friday after domestic data showing a much bigger-than-expected jobs gain in September supported bets for the Bank of Canada to keep interest rates on hold this month.

The Canadian economy added 53,700 jobs in September, the second straight month of robust jobs gains, Statistics Canada data showed. Analysts had forecast a gain of 10,000 jobs

"A huge labor market print has helped the loonie take more ground against the U.S. dollar today," Simon Harvey, FX market analyst for Monex Europe and Monex Canada, said in a note. "Markets are now pricing a Bank of Canada rate cut at the end of the month as a slim probability."

Chances of a Bank of Canada interest rate cut at the October 30 policy decision dipped to 7% from 9% before the data, the overnight index swaps market indicated. <BOCWATCH>

The central bank has kept its benchmark rate on hold at 1.75% this year even as other central banks, including the Federal Reserve and the European Central Bank, have eased.

At 2:38 p.m. (1838 GMT), the Canadian dollar <CAD=D4> was trading 0.8% higher at 1.3184 to the greenback, or 75.85 U.S. cents. The currency, which was up 0.9% for the week, touched its strongest intraday level since Sept. 11 at 1.3171.

Rising investor hopes that talks between U.S. President Donald Trump and Chinese Vice Premier Liu He would culminate in a partial trade deal added to support for the loonie.

Canada is a major exporter of commodities, including oil, so its economy could benefit from reduced trade uncertainty.

Oil prices climbed after Iranian media said a state-owned oil tanker had been struck by missiles in the Red Sea near Saudi Arabia. U.S. crude oil futures <CLc1> settled 2.2% higher at $54.70 a barrel.

Canadian government bond prices fell across the yield curve, with the two-year <CA2YT=RR> down 19 Canadian cents to yield 1.653% and the 10-year <CA10YT=RR> falling 100 Canadian cents to yield 1.519%.

Canada's 2-year yield climbed 4.1 basis points further above its U.S. equivalent to a spread of 5.5 basis points, the biggest gap in favor of the Canadian bond since October 2017.

It was an early close for the bond market ahead of a market holiday on Monday in observance of Thanksgiving Day.

(Reporting by Fergal Smith; Editing by Nick Zieminski and Louise Heavens)