TORONTO, Aug 7 (Reuters) - The Canadian dollar strengthened to an eight-week high against its U.S. counterpart on Friday as stronger-than-expected domestic jobs data contributed to narrower yield spreads between the U.S. and Canada.
The loonie was trading 0.6% higher at 1.3935 per U.S. dollar, or 71.76 U.S. cents, its strongest intraday level since June 11. For the week, the currency was on track to gain 0.6%.
Canadian employment rose by 75,100 jobs in July, eclipsing expectations for a gain of 16,500, and the unemployment rate dropped to a two-year low of 6.4%.
"Today’s report suggests that growth momentum seen in the second quarter may have carried on into the start of Q3," Andrew Grantham, senior economist at CIBC Capital Markets, said in a note.
Recent preliminary data has pointed to Canada's economy growing by 3.4% in the second quarter.
"Bond yields struggled for direction immediately after the release, as the better than expected Canadian data contrasted with a much weaker than anticipated U.S. payrolls report," Grantham said.
The U.S. economy unexpectedly shed jobs in July and nonfarm payrolls for the prior two months were revised sharply lower, raising questions about whether the Federal Reserve will increase interest rates next month.
The U.S. dollar (.DXY), lost ground against a basket of major currencies.
The price of oil, one of Canada's major exports, was trading 0.5% higher at $77.64 a barrel as investors weighed signals that Gulf states and Iran were closing in on a deal to reopen the Strait of Hormuz.
Canadian bond yields rose across a flatter curve. The 2-year was up 2.3 basis points at 2.951%, while the gap between it and the U.S. equivalent narrowed by 8.3 basis points to about 123 basis points in favor of the U.S. note.
Reporting by Fergal Smith; Editing by Nia Williams
