The Canadian dollar on Friday hit its strongest against its U.S. counterpart since late May after a surprisingly strong domestic jobs report that boosted the argument for the Bank of Canada to raise interest rates.
Canada's job growth accelerated in May at its fastest pace in eight months, Statistics Canada said. Employers added 54,500 jobs, handily topping economists' forecast for a gain of 11,000.
"If you compared these (full-time employment) numbers to what they would have to be in the States, you'd be looking at three-quarters of a million jobs" there, said David Bradley, director of foreign exchange trading at Scotiabank. "The (U.S.) dollar would go crazy over a number like that."
At 4 p.m. EDT, the Canadian dollar was trading at $1.3463 to the greenback, or 74.28 U.S. cents, up 0.3 per cent.
It had gotten to $1.3424 after the data, its strongest since May 29, after touching its weakest since June 2 at $1.3545 in overnight trade.
The greenback was itself higher against a basket of currencies , helped by a sharp drop in the British pound after the country's Conservative Party lost its parliamentary majority in a snap election.
In other domestic data, industrial capacity use rose to its highest since 2007 in the first quarter, lifted by manufacturing and construction.
Perceived chances of an interest rate increase this year rose to nearly 30 per cent soon after the jobs report versus 22 per cent before, data from the overnight index swaps market showed. It was last at 26 per cent .
"It is just another piece of information that suggests that the Bank of Canada could be tightening maybe a little bit earlier than markets are pricing," said Andrew Kelvin, senior rates strategist at TD Securities.
The foreign exchange options market is showing much less risk of a sharp drop in the Canadian dollar than before last November's U.S. election, which could spell bad news for speculators who have heavily shorted the underperforming currency.
Net short positions on the loonie were trimmed for a second straight week to 94,501 contracts as of June 6, from 98,187 a week earlier, data from the Commodity Futures Trading Commission and Reuters calculations showed, but held near a record high.
Canadian government bond prices were lower across the yield curve, with the two-year down 4 Canadian cents to yield 0.737 per cent and the benchmark 10-year slipping 5 Canadian cents to yield 1.423 per cent.