Canadian dollar rebounds ahead of key U.S. inflation data

By Fergal Smith

TORONTO (Reuters) -The Canadian dollar strengthened against its U.S. counterpart on Thursday as domestic data showed wage growth picking up and ahead of U.S. inflation data that could offer clues on the prospect of Federal Reserve interest rate cuts.

The loonie was trading 0.3% higher at 1.3660 to the U.S. dollar, or 73.21 U.S. cents, clawing back all of the previous day's decline.

Gains for the loonie came as the U.S. dollar eased against most currencies after data showed the U.S. economy grew at a surprisingly slow pace and inflation came in hotter than expected in the first quarter.

The data raised concern that the U.S. economy is slowing while inflation is still strong, Darren Richardson, chief operating officer at Richardson International Currency Exchange Inc, said in a note.

"Investors are hoping to see a drop in inflation so the Fed can cut interest rates thus weakening the U.S. dollar."

The U.S. PCE index, due for release on Friday, is among the Fed's most important gauges of price behavior.

Canadian payroll employment fell 17,700, or 0.1%, in February following an increase of 35,700 in January, while growth in average weekly earnings accelerated to an annual pace of 4.5% from 3.7%, Statistics Canada said.

The Bank of Canada is monitoring wage growth for evidence that recent cooling in Canadian inflation can be sustained.

The price of oil, one of Canada's major exports, rose as concern about fuel demand was offset by worries of supply disruptions. U.S. crude oil futures settled 0.9% higher at $83.57 a barrel.

Canadian government bond yields climbed across the curve, tracking moves in U.S. Treasuries. The 10-year was up 5.9 basis points at 3.865%, after touching its highest level since Nov. 2 at 3.891%.

(Reporting by Fergal Smith; Editing by Josie Kao and Daniel Wallis)