TORONTO: The Canadian dollar weakened sharply to a one-week low against its US counterpart on Friday as a slump in domestic jobs and a record-wide Canadian trade deficit contrasted with a strong US jobs report.
The Canadian economy unexpectedly shed 31,200 jobs last month, driven by a decline in full-time positions that sent the unemployment rate up to 6.9 percent, data from Statistics Canada showed.
In addition, Canada's trade gap unexpectedly widened to a record deficit in June as imports of motor vehicles and parts jumped while the increase in exports was lackluster.
"It's a nightmare scenario for the Canadian dollar, essentially a robust US report and a pair of ugly Canadian numbers. It doesn't get much worse than this," said Doug Porter, chief economist, BMO Capital Markets.
Lower oil prices added to pressure on the commodity-linked Canadian dollar as a glut of crude and refined products weighed on markets and investors eyed a possible stutter in China's imports. US crude prices were down 0.50 percent to $41.72 a barrel.
At 9:21 a.m. EDT (1321 GMT), the Canadian dollar was trading at C$1.3166 to the greenback, or 75.95 US cents, much weaker than Thursday's close of C$1.3022, or 76.79 US cents.
The currency's strongest level of the session was C$1.3008, while it touched its weakest since July 29 at C$1.3175.
The implied probability of a Bank of Canada rate cut rose to 17 percent after the data, overnight index swaps data showed. It was 12 percent before the data.
In contrast, traders raised bets on a Federal Reserve rate hike after the US jobs report showed employers added more jobs than expected last month.
Canadian government bond prices were mixed across the maturity curve, with the two-year bond up 3.5 Canadian cents to yield 0.52 percent and the benchmark 10-year rising 5 Canadian cents to yield 1.04 percent.
The yield on Canada's two-year bond fell 6.9 basis points further below the yield on its US equivalent, leaving the spread at -17.8 basis points, as Canadian government bonds outperformed US Treasuries on the contrasting data.
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