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* Canadian dollar rises 0.5% against the greenback
* Canada adds 27,700 jobs in May
* Loonie is on track to climb 1.7% for the week
* Canada-U.S. 2-year spread touches narrowest since March 2018
TORONTO, June 7 (Reuters) - The Canadian dollar strengthened to a seven-week high against its U.S. counterpart on Friday, boosted by domestic data showing a record low unemployment rate that could give the Bank of Canada some confidence in its rosy outlook for the economy. Canada added a higher-than-expected 27,700 net new jobs in May, which followed a record gain of 106,500 positions in April, and the unemployment rate dipped to a record low of 5.4%, official data showed. "The labor market looks like it is holding up, so I think they (the Bank of Canada) are very comfortable with policy rates where they are," said Andrew Kelvin, chief Canada strategist at TD Securities. "The bank has, I think, signaled with a fair bit of conviction that they are very comfortable with the Canadian outlook." The Bank of Canada has said that a slowdown in the domestic economy was temporary. But chances of an interest rate cut this year by the central bank stayed high, at about 85%, after the Canadian jobs report, with data from the United States showing a sharp slowdown in U.S. job growth.
At 9:32 a.m. (1332 GMT), the Canadian dollar was
trading 0.5% higher at 1.3295 to the greenback, or 75.22 U.S. cents. The currency, which was on track to rise 1.7% for the week, touched its strongest intraday level since April 17 at 1.3290. U.S.-Mexico migration talks were set to resume on Friday as Mexican officials continue their push to reach an agreement that would avert U.S. tariffs set to take effect next week.
Investors worry that the tariffs could undermine chances of a new North American trade deal coming into force. Canada sends about 75% of its exports, including oil, to the United States. The price of oil, one of Canada's major exports, climbed further from five-month lows hit this week amid signs that OPEC and other producers could extend their output reduction deal.
U.S. crude oil futures were up 0.7% at $52.97 a barrel.
Canadian government bond prices were higher across the yield curve in sympathy with U.S. Treasuries. The two-year rose 6 Canadian cents to yield 1.349% and the 10-year climbed 33 Canadian cents to yield 1.424%. The gap between Canada's 2-year yield and its U.S. equivalent narrowed by 6.4 basis points to a spread of 43.5 basis points in favor of the U.S. bond, its narrowest gap since March last year.
(Reporting by Fergal Smith Editing by Chizu Nomiyama)