Canadian dollar dips as boost fades from BoC rate hike

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Thursday, largely unwinding the boost it got from a Bank of Canada interest rate hike a day earlier.

At 4:42 p.m. (2042 GMT), the Canadian dollar was trading 0.1 percent lower at 1.3071 to the greenback, or 76.51 U.S. cents. The currency traded in a range of 1.3015 to 1.3098.

On Wednesday, the loonie touched its strongest intraday level in a week, at 1.2969, after the Bank of Canada raised interest rates and said it might speed up the pace of future hikes given that the economy was running at almost full capacity and did not need any stimulus.

Money markets expect the central bank to hike rates again by January.

"I think a little bit of the wind that was pushing it higher with the Bank of Canada raising rates yesterday has dissipated," said Rahim Madhavji, president of Knightsbridge Foreign Exchange. "I think the move yesterday was perhaps too aggressive."

The price of oil, one of Canada's major exports, tracked the U.S. stock market higher a day after Wall Street's biggest drop since 2011 and as Saudi Arabia's energy minister signaled major producers may have to intervene in crude markets to support prices.

U.S. crude oil futures settled 0.8 percent higher at $67.33 a barrel.

U.S. stocks jumped as Microsoft's upbeat earnings spurred a rebound in technology names and investors snapped up oversold shares.

Canadian average weekly earnings of nonfarm payroll employees rose 2.9 percent year-over-year in August, while the number of nonfarm payroll employees was up 24,600 in August from July, according to data released on Thursday.

Canadian government bond prices were lower across the yield curve, with the two-year down 1.5 Canadian cents to yield 2.315 percent, and the 10-year falling 8 Canadian cents to yield 2.452 percent.

The gap between Canada's 2-year yield and its U.S. equivalent narrowed by 1.3 basis points to a spread of 53.6 basis points in favor of the U.S. bond.

(Reporting by Fergal Smith; editing by Jonathan Oatis and Leslie Adler)

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