Rate hike lifts Canadian dollar to second week of gains

By Fergal Smith

TORONTO (Reuters) -The Canadian dollar was barely changed against its U.S. counterpart on Friday, holding near a two-month high, as investors continued to bet on another Bank of Canada rate hike despite domestic data showing a surprise jobs decline.

The loonie was trading nearly unchanged at 1.3445 to the greenback, or 74.93 U.S. cents, after touching its strongest intraday level since April 14 at 1.3311. For the week, the currency was up 0.6%, its second straight week of gains.

"The CAD has extended its strong start to June to retest the low end of its trading range against the USD that has prevailed since late last year," Shaun Osborne, chief currency strategist at Scotiabank, said in a note.

"The obvious catalyst for the CAD's gains is the BoC's rate tightening on Wednesday, motivated by resilient demand and stubborn inflation pressures that policymakers clearly fear becoming more entrenched above 2%."

On Wednesday, the BoC hiked its benchmark rate by 25 basis points to a 22-year high of 4.75%.

Money markets see a roughly 60% chance of another hike in July. While that's down from 68% before the jobs data, a move remained fully priced in by September.

Canada's economy shed 17,300 jobs in May, missing forecasts for a gain of 23,200, and the unemployment rate rose for the first time in nine months.

The price of oil, one of Canada's major exports, settled 1.6% lower at $71.25 a barrel as disappointing Chinese data added to doubts about demand growth.

Canadian government bond yields fell across the curve, moving in the opposite direction of U.S. yields.

The 10-year eased 7 basis points to 3.368%, after touching on Thursday its highest intraday level in more than three months at 3.466%.

(Reporting by Fergal Smith; editing by Jonathan Oatis and Cynthia Osterman)