Loonie strengthens on strong wage increase

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Friday, recovering from an earlier loss after a decline in July employment numbers, as the increase in wages firmed investors’ belief in a strong Canadian economy.

Wages for permanent employees rose by 4.5% year-over-year, the largest gain seen since January 2009, domestic data showed.

“I think there was a bit of a second read as well on the employment data, first of all the headline number was weak, but the wages component was relatively firm so I think the part of it (firming of the loonie) was from that,” said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets.

At 3:35 p.m. EDT (1935 GMT), the Canadian dollar CAD=D4 was trading 0.2% higher at 1.3198 to the greenback, or 75.77 U.S. cents. The currency, despite having a volatile week, was nearly unchanged from the last Friday.

For the year, the loonie is up 3.2%, making it the second-best performing G10 currency against the U.S. dollar.

Canada’s economy lost a net 24,200 jobs in July, after shedding 2,200 in the previous month but grew by 1.9% from the last year, also showed domestic data.

The rise of the loonie came as the price of oil, one of Canada’s major exports, increased on Friday, supported by a drop in European inventories and OPEC output cuts despite the International Energy Agency forecasting demand growth at its lowest since the financial crisis of 2008.

U.S. crude oil futures CLc1 settled 3.7% higher at $54.50 a barrel.

Canadian government bond prices were lower across the yield curve, with the two-year CA2YT=RR down 4.5 Canadian cents to yield 1.4% and the 10-year CA10YT=RR falling 26 Canadian cents to yield 1.3%.

Reporting by Levent Uslu; Editing by Marguerita Choy