Loonie posts weekly decline as Canadian jobs data disappoints

* Canadian dollar weakens 0.5% against the greenback

* Touches its weakest since July 19 at 1.2984

* Canada's economy sheds 31,000 jobs in July

* 10-year yield falls 8.8 bps below U.S. equivalent

By Fergal Smith

TORONTO, Aug 5 (Reuters) - The Canadian dollar fell to a two-week low against the greenback on Friday as Canada's economy shed jobs for a second straight month in July, contrasting with a surge in U.S. hiring that could accelerate Federal Reserve interest rate hikes.

The loonie CAD= was trading 0.5% lower at 1.2935 to the greenback, or 77.31 U.S. cents, after touching its weakest level since July 19 at 1.2984. For the week, the currency was down 1.1%, its biggest weekly loss in seven weeks.

"The divergence in this morning's employment figures between Canada and the U.S. is the main driver of CAD weakness today," said Tony Valente, senior FX dealer at AscendantFX.

"The fact that the U.S. number beat (expectations) by such a large amount ... poured cold water on an early Fed pivot on the rates front."

U.S. job growth unexpectedly accelerated in July, lifting the level of employment above its pre-pandemic level and providing the strongest evidence yet that the economy was not in recession.

Bond yields climbed and the U.S. dollar .DXY jumped against a basket of major currencies as investors raised bets that the Fed would hike by three quarters of a percentage point in September. FEDWATCH

The Bank of Canada is also expected to opt for an oversized rate hike next month despite data showing that Canada's economy shed 31,000 jobs in July, missing analyst expectations for an increase of 20,000. BOCWATCH

The price of oil, one of Canada's major exports, settled 0.5% higher at $89.01 a barrel but still trading near the lowest level since February.

Canadian government bond yields moved higher across the curve as yields on U.S. Treasuries soared.

The 10-year CA10YT=RR was up 6.8 basis points at 2.734% but falling 8.8 basis points below the yield on the equivalent U.S. bond.
Reporting by Fergal Smith; Editing by Susan Fenton and Sandra Maler

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