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Canadian dollar notches three-week high as job gains boost rate hike bets

The Canadian dollar strengthened to a three-week high against its U.S. counterpart on Friday as oil prices rose and data showing a stronger-than-expected rise in domestic jobs raised expectations for a Bank of Canada interest rate hike next week.

The Canadian economy added 31,800 jobs in June, more than the 24,000 gain that analysts had predicted.

Chances of a Bank of Canada interest rate increase at the July 11 announcement climbed to more than 90 percent from 88 percent before the data, the overnight index swaps market indicated.

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“The market’s view is that the bank will raise rates,” said Blake Jespersen, managing director, foreign exchange sales at BMO Capital Markets. “You’ve also had oil prices steadily climbing higher ... so that’s also helping the Canadian dollar.”

U.S. crude oil futures settled 1.2 percent higher at $73.80 a barrel. Oil is one of Canada’s major exports.

At 4 p.m. EDT, the Canadian dollar was trading 0.2 percent higher at $1.3107 to the greenback, or 76.30 U.S. cents. The currency touched its strongest since June 14 at $1.3077.

Gains for the loonie came despite the United States and China slapping tit-for-tat duties on $34 billion worth of each other’s goods.

“The big question for us remains will we get any escalation in the trade war between the U.S. and China over the weekend and early next week that could blow things apart,” said Paul-Andre Pinsonnault, senior fixed income economist at National Bank Financial.

Canada runs a current account deficit so its economy could be hurt if the flow of trade or capital slows. The country has its own trade feud with the United States and is also in slow-moving talks to revamp the North American Free Trade Agreement.

The loonie, which rose 0.2 percent for the week, will climb over the coming year, a Reuters poll showed. But forecasters are less bullish than they were a month ago as escalating trade uncertainty competes with expected Bank of Canada rate hikes.

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Separately, Statscan said Canada’s trade deficit in May grew to $2.77 billion from $1.86 billion in April.

The U.S. dollar fell after data showed the U.S. economy created more jobs than expected in June, but a closely watched inflation gauge rose less than forecast.

Canadian government bond prices were higher across a flatter yield curve, with the 10-year rising 18 Canadian cents to yield 2.126 percent.

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