CANADA FX DEBT-Canadian dollar rises to 10-week high as jobs data beats estimates for third month

By Fergal Smith

TORONTO, Dec 5 (Reuters) - The Canadian dollar strengthened by the most in six months against its U.S. counterpart on Friday and bond yields jumped, as stronger-than-expected domestic jobs data boosted bets the Bank of Canada would begin raising interest rates next year.

The loonie CAD= was trading 0.7% higher at 1.3854 per U.S. dollar, or 72.18 U.S. cents, which was the currency's strongest level since September 24 and put the currency on track for its biggest advance since May 23.

Canada's unemployment rate once again defied expectations and fell to a 16-month low in November as the economy added 53,600 jobs, marking the third-straight month of robust job gains.

"The Bank of Canada was already unlikely to cut interest rates further at next week's policy decision given higher Q3 GDP, better-than-expected labour market data over September and October, and core inflation that is still running above the central bank's 2% target," Nathan Janzen, assistant chief economist at Royal Bank of Canada, said in a note.

"The November labour market data likely cements that decision, and also is consistent with our base case that the BoC will not need to reduce interest rates again through next year."

The Bank of Canada will leave its benchmark interest rate on hold at a three-year low of 2.25% on December 10, according to all economists polled by Reuters.

Investors moved to fully price in an interest rate hike in 2026, up from a 20% chance before the jobs data, swap market data showed. 0#CADIRPR

The price of oil, one of Canada's major exports, was also a tailwind for the currency. U.S. crude oil futures CLc1 increased 1.2% to $60.37 a barrel, supported by stalled Ukraine peace talks.

Canadian bond yields moved higher across a flatter curve. The 2-year CA2YT=RR was up 16.7 basis points at 2.631%, after earlier touching its highest level since September 3 at 2.654%.