Jobs data helps Canadian dollar pare weekly decline

A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto

By Fergal Smith

TORONTO (Reuters) -The Canadian dollar strengthened against its U.S. counterpart on Friday, as stronger-than-expected domestic jobs data kept alive prospects of another rate hike by the Bank of Canada after the central bank moved to the sidelines earlier in the week.

The loonie was trading 0.4% higher at 1.3625 to the greenback, or 73.39 U.S. cents, after moving in a range of 1.3609 to 1.3689.

Still, it was down 0.2% for the week, a day after touching a five-month low at 1.3694.

Canada's economy added 39,900 jobs in August, more than twice estimates for a gain of 15,000, and the unemployment rate remained at 5.5%, a sign of underlying economic strength despite high interest rates.

Money markets see a 44% chance of another BoC rate hike by year-end, up from 36% before the data. On Wednesday, the central bank left its benchmark rate on hold at a 22-year high of 5% after hikes in June and July, noting that the economy had entered a period of weaker growth.

The jobs data is "not strong enough to prompt an immediate rethink on the pause, but it's also certainly not soft enough to rule out further hikes", Doug Porter, chief economist at BMO Capital Markets, said in a note.

Adding to support for the loonie, U.S. crude oil futures were up nearly 1% at $87.72 a barrel as investors chose to focus on tighter supply despite broader macroeconomic uncertainty, while the U.S. dollar edged lower against a basket of major currencies.

The Canadian 2-year yield rose 5.9 basis points to 4.669%, while the gap between it and its U.S. equivalent narrowed by 3.6 basis points to 30.9 basis points in favor of the U.S. note.

(Reporting by Fergal Smith; editing by Mark Heinrich and Leslie Adler)