TORONTO: The Canadian dollar weakened against its US counterpart on Thursday, pulling back from a one-month high, as investors worried about the Federal Reserve’s policy outlook and data showed Canada’s trade balance swinging to a deficit.

The loonie was trading 0.5% lower at 1.3540 to the greenback, or 73.86 US cents, after touching its strongest intraday level since Dec. 5 at 1.3467.

US stock index futures fell and the US dollar rallied against a basket of major currencies after a greater-than-expected rise in US private employment dented optimism that the Fed would dial back its hawkish stance.

US and Canadian employment reports, due on Friday, could offer further clues on the outlook for interest rates. Economists expect Canada to add 8,000 jobs in December.

C$ rallies as European inflation data boosts sentiment

Money markets see a roughly 60% chance that the BoC would hike rates by 25 basis points at its next policy decision on Jan. 25.

Canada posted a trade deficit of C$41 million ($30.3 million) in November after a revised surplus of C$130 million in October, data from Statistics Canada showed.

A decline in energy products contributed to a drop in exports, while imports also fell.

The price of oil was up 0.4% at $73.14 a barrel, after sharp declines over the previous two days.

Canadian government bond yields were higher across the curve, tracking the move in US Treasuries. The 10-year rose 4.4 basis points to 3.187%.