Canadian dollar pulls back from 8-month high as investors reweigh Fed outlook

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Friday, pulling back from an eight-month high the day before, as the greenback broadly climbed and after data showed a surprise drop in Canadian jobs in June.

The U.S. dollar <.DXY> gained against a basket of currencies after an unexpectedly strong U.S. payrolls report that caused investors to rethink how dovish a turn the Federal Reserve may take.

"It's a 'big dollar' story," said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York. "The dollar has gained against everything, and the least against CAD."

Other than the U.S. dollar, the loonie was the best performing G10 currency.

Canada's economy shed a net 2,200 jobs in June after two months of gains, but wages jumped by the most in more than a year - a sign of strength analysts said ruled out the chances of the Bank of Canada cutting interest rates next week.

"The headline number was a little weak but all the details were good," Anderson said.

Chances that the central bank would cut rates this year slipped to about 15% from 25% before the jobs report, the overnight index swaps market indicated. <BOCWATCH>

In separate domestic data, the seasonally adjusted Ivey Purchasing Managers Index fell to its lowest since February at 52.4 from 55.9 in May.

At 3:15 p.m. (1915 GMT), the Canadian dollar <CAD=D4> was trading 0.2% lower at 1.3081 to the greenback, or 76.45 U.S. cents. The currency, which on Thursday notched an eight-month high at 1.3038, traded in a range of 1.3045 to 1.3136.

For the week, the loonie was nearly unchanged.

The Canadian dollar will edge higher against the greenback over the coming year, as a recovering domestic economy forestalls Bank of Canada interest rate cuts despite expected easing from the U.S. Federal Reserve, a Reuters poll predicted.

The price of oil, one of Canada's major exports, was supported on Friday by tensions over Iran and a decision by OPEC and its allies to extend an output supply cut deal until next year. U.S. crude oil futures <CLc1> settled 0.3% higher at $57.51 a barrel.

Canadian government bond prices were sharply lower across the yield curve in sympathy with U.S. Treasuries. The two-year <CA2YT=RR> fell 18.5 Canadian cents to yield 1.623% and the 10-year <CA10YT=RR> was down 101 Canadian cents to yield 1.576%.

The 10-year yield touched its highest intraday since May 30 at 1.582%.

(Reporting by Fergal Smith; editing by Jonathan Oatis)