Canadian dollar slips to two-month low ahead of key jobs report

TORONTO (Reuters) - The Canadian dollar weakened on Thursday to a two-month low against its broadly higher U.S. counterpart, but the loonie pared some losses as investors awaited jobs data that could help guide Bank of Canada interest rate expectations.

U.S. and Canada Dollar notes are seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

At 4:06 p.m. (2106 GMT), the Canadian dollar CAD=D4 was trading 0.1% lower at 1.3290 to the greenback, or 75.24 U.S. cents. The currency touched its weakest intraday level since Dec. 3 at 1.3309.

“We are in wait-and-see mode for the U.S. and Candian jobs reports tomorrow,” said Erik Nelson, a currency strategist, at Wells Fargo.

While the Bank of Canada will take Friday’s jobs data into account, after solid employment gains last year a weak number would be unlikely by itself to trigger an interest rate cut, Nelson said.

In 2019, employment increased by 1.7% but all the job gains were in the first three quarters of the year. Last month, the Bank of Canada opened the door to an interest rate cut should recent weakness in the domestic economy persist.

Money markets expect the central bank to stay on hold at its next interest rate decision on March 4 but see about an 80% chance of a cut by the summer.

The loonie will climb over the coming year, recouping much of its recent decline, as the economic threat from the coronavirus outbreak in China likely fades, and some analysts do not expect the Bank of Canada to cut interest rates in 2020, a Reuters poll of analysts showed.

The price of oil, one of Canada's major exports, was close to flat on Thursday as OPEC and its partner Russia gave mixed signals about possible further output cuts to mitigate the impact of any weakening in global demand due to the coronavirus outbreak. U.S. crude oil futures CLc1 were up 0.6% at $51.04 a barrel, while global benchmark Brent crude dipped.

The U.S. dollar .DXY rose against a basket of major currencies, bolstered by recent strong U.S. economic numbers, while stocks .WORLD globally were boosted by China's plan to chop additional tariffs on some American goods by 50%.

Canadian government bond yields were lower across a flatter yield curve. The 10-year yield CA10YT=RR eased 2 basis points to 1.369%, after earlier in the day touching its highest level since Jan. 24 at 1.403%.

Reporting by Fergal Smith; editing by Jonathan Oatis and David Gregorio