TORONTO, Jan 11 (Reuters) - The Canadian dollar weakened to a seven-month low against the greenback on Thursday before clawing back some of its decline, as oil prices fluctuated and the gap between Canadian and U.S. 2-year yields touched its widest in one year.
The loonie was trading 0.3% lower at 1.3980 per U.S. dollar, or 71.53 U.S. cents, after earlier touching its weakest level since November at 1.4023.
"It's primarily (interest) rate spreads," said Benjamin Reitzes, Canadian rates & macro strategist at BMO Capital Markets, adding that weak domestic data over the last several weeks and a more dovish Bank of Canada have contributed to wider spreads.
The BoC on Wednesday left its benchmark interest rate unchanged at 2.25% for a fifth straight time and said it was seeing limited evidence that higher energy prices were fueling broad-based inflation.
The Canadian 2-year yield fell as much as 131 basis points below the equivalent U.S. rate, marking the largest gap since June 2025, before recovering to about 128 basis points. Investors tend to favor the higher-yielding currency.
"We'll need to see a run of solid data like with the better jobs number before things begin to look a little more positive," Reitzes said.
Data on Friday showed that Canada's economy added 87,800 jobs and the unemployment rate fell to 6.6% in May, wiping out much of the job declines since the start of the year.
The price of oil, one of Canada's major exports, gave back its earlier gains to trade 2% lower at $88.21 a barrel after U.S. President Donald Trump said he has canceled strikes against Iran that had been scheduled for later in the evening.
Wall Street rallied and the U.S. dollar edged lower against a basket of major currencies.
Canadian bond yields moved lower across a flatter curve, tracking moves in U.S. Treasuries. The 10-year was down 7 basis points at 3.427%.
Reporting by Fergal Smith; Editing by Aurora Ellis
