Canadian dollar rises as domestic wage gains boost BoC rate hike bets

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Friday as data showing higher domestic wages supported bets for a Bank of Canada interest rate hike next month, even as consensus appeared to elude leaders at a G7 summit.

The Canadian economy unexpectedly shed 7,500 jobs in May as hiring declined in the manufacturing and construction sectors, data from Statistics Canada showed. Economists had forecast a gain of 17,500 jobs.

But wages rose at their strongest annual pace in nearly six years, which could give the Bank of Canada room to raise interest rates as soon as July.

Chances of a Bank of Canada interest rate hike next month nudged up to 72 percent from 69 percent before the data, the overnight index swaps market indicated.

"Ultimately what carried the day was the stronger than expected wage number," said Eric Theoret, currency strategist at Scotiabank.

Economic fundamentals were more important for the market than headlines coming from the G7, Theoret said.

Expectations for any breakthroughs at the two-day Group of Seven meeting in La Malbaie, Quebec, were low.

At 4 p.m. EDT (2000 GMT), the Canadian dollar was trading 0.3 percent higher at C$1.2935 to the greenback, or 77.31 U.S. cents. The currency traded in a range of C$1.2923 to C$1.3040.

Still, the loonie fell 0.6 percent for the week.

Speculators have added to bearish bets on the Canadian dollar, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed. As of June 5, net short positions rose to 16,039 contracts from 15,690 a week earlier.

The price of oil, one of Canada's major exports, fell as weakening demand in China and surging U.S. output weighed on markets. U.S. crude prices settled 0.3 percent lower at $65.74 a barrel.

Business leaders in the Canadian province of Ontario will closely watch new premier-elect Doug Ford for signs the populist conservative can deliver on his pledge to boost economic growth and lower the cost of operating in the country's most populous province.

Investors, who worry about the province's high debt load, are also seeking details of the new government's fiscal plan.

The gap between Ontario's 10-year yield and the equivalent maturity Quebec bond narrowed by 1.3 basis points to a spread of 4.2 basis points.

Canadian government bond prices were lower across a steeper yield curve, with the 10-year falling 28 Canadian cents to yield 2.316 percent.

(Reporting by Fergal Smith; Editing by Bill Trott and Sandra Maler)