CANADA FX DEBT-Canadian dollar rallies as jobs data rekindles rate hike bets

* Strengthens 0.4% against the greenback

* For the week, loonie on track to lose 0.2%

* Canada adds 39,900 jobs in August

* Canada-U.S. 2-year spread narrows by 5 basis points

TORONTO, Sept 8 (Reuters) – The Canadian dollar
strengthened against its U.S. counterpart on Friday as
stronger-than-expected domestic jobs data kept alive prospects
of another interest rate hike by the Bank of Canada.

The loonie was trading 0.4% higher at 1.3620 to the
greenback, or 73.42 U.S. cents, after moving in a range of
1.3609 to 1.3689.

On Thursday, it touched a five-month low at 1.3694. It was
on track to post a weekly decline of 0.2%.

Canada’s economy added 39,900 jobs in August, eclipsing
estimates for a gain of 15,000, and the unemployment rate
remained at 5.5%, a sign of underlying 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 0.5% at $87.26 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 3.3 basis points to
4.643%, while the gap between it and its U.S. equivalent
narrowed by 5 basis points to 29.5 basis points in favor of the
U.S. note.
(Reporting by Fergal Smith; editing by Mark Heinrich)