C$ hits 4-month low as rate cut bets rise on jobs miss

By Fergal Smith

TORONTO (Reuters) -The Canadian dollar weakened to a four-month low against its U.S. counterpart on Friday before clawing back some losses as investors raised bets the Bank of Canada would begin cutting interest rates in June following weaker-than-expected jobs data.

Canada's economy shed 2,200 jobs in March, missing estimates for a gain of 25,000, while the jobless rate increased to a new 26-month high of 6.1%.

"Today's data confirms that the Canadian economy isn't as strong as official GDP data and the BoC are making out, and that substantial rate cuts are needed," said Simon Harvey, head of FX analysis for Monex Europe and Monex Canada.

"As markets come around to this inevitability and start to price increasingly diverging paths for the BoC and Fed, it should lead USD-CAD up to our 3-month forecast of 1.38."

Investors see a 75% chance the Canadian central bank would begin cutting rates in June, up from 68% before the data.

A June start to rate cuts was also the view of the majority of economists in a Reuters poll, with the BoC expected to leave rates on hold at a policy decision next Wednesday.

The Canadian dollar was trading 0.3% lower at 1.3585 to the U.S. dollar, or 73.61 U.S. cents, after touching its weakest since Nov. 27 at 1.3647. For the week, the currency was down 0.4%.

Separate data showed U.S. job growth beating expectations, boosting the U.S. dollar against a basket of major currencies.

The price of oil, one of Canada's major exports, settled 0.4% higher at $86.91 a barrel, adding to its recent gains as geopolitical tensions rose in the Middle East.

The gap between Canada's 2-year yield and the U.S. equivalent widened by about 7 basis points to 53 basis points in favor of the U.S. note, its widest since Feb. 26.

(Reporting by Fergal Smith; Editing by Andrea Ricci and Alistair Bell)