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April 9, 2022

Canadian dollar gains as jobs data underpins 50 basis point rate hike bets

The Canadian dollar CADUSD +0.14%increase pared its weekly decline against the greenback on Friday and bond yields climbed to multi-year highs as domestic data showing a record low jobless rate supported expectations for an upsized interest rate by the Bank of Canada.

Canada’s unemployment rate fell to 5.3% in March, highlighting the tightening of the country’s labor market, with the economy adding 72,500 jobs.

“To keep the job creation machine going is a strong plus,” said Derek Holt, vice president of capital markets economics at Scotiabank, adding that he expects the Bank of Canada to hike by a half-percentage-point at a policy decision next Wednesday.

Money markets see a 90% chance of a 50 basis points move next week, up from 70% at the beginning of April. It would be the first hike of that magnitude since May 2000, with the central bank usually moving in quarter-percentage-point increments.

Also supportive of the loonie, the price of oil settled 2.3% higher at $98.26 a barrel. Oil is one of Canada’s major exports.

The Canadian dollar was trading 0.1% higher at 1.2580 to the greenback, or 79.49 U.S. cents, recovering after it touched its weakest intraday level since March 22 at 1.2619.

For the week, the currency was down 0.5%, losing ground after posting on Tuesday its strongest intraday level in nearly five months at 1.24.

The weekly decline came as the U.S. dollar index strengthened to 100 for the first time in nearly two years, supported by the prospect of a more aggressive pace of Federal Reserve interest rate hikes.

Canadian government bond yields moved higher across the curve, tracking the move in U.S. Treasuries. The 10-year

touched its highest since January 2014 at 2.647% before dipping slightly to 2.639%, up 6.4 basis points on the day.

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