By Fergal Smith
TORONTO (Reuters) - The Canadian dollar rallied against its U.S. counterpart on Friday, as the greenback gave back some recent gains and investors looked for Canada's jobs report next week to support further reduction of stimulus by the Bank of Canada.
The loonie was trading 0.9% higher at 1.2320 to the greenback, or 81.17 U.S. cents, its biggest advance since May 6.
Earlier, the currency touched its weakest level since June 21 at 1.2449. For the week, it was down 0.2%.
The U.S. dollar dropped from a three-month high against a basket of major currencies after the U.S. nonfarm payrolls report for June showed a strong jobs gain but some weak details. The greenback had rallied this week on expectations for a strong report.
"I think the (U.S.) dollar was technically overextended," said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC. "It was vulnerable to buy the rumor, sell the fact."
Canada's employment report for June is due next Friday. Analysts expect jobs to rebound after two months of declines, helped by easing of economic restrictions to curb the COVID-19 pandemic.
That could see the Bank of Canada cutting its bond purchases again at the July 14 interest rate announcement, Chandler said.
In April, the BoC became the first major central bank to reduce pandemic support. The BoC's more hawkish stance and higher oil prices will help the loonie strengthen over the coming year but gains could stop short of the recent six-year high near 1.20, a Reuters poll showed.
Canada posted a trade deficit of C$1.4 billion in May, as imports increased and exports fell. Separate data showed Canadian factory activity for June growing at the slowest pace in four months.
Canada's 10-year yield eased nearly one basis point to 1.379%, toward the bottom of its range since March.
(Reporting by Fergal Smith; editing by Jonathan Oatis and Alistair Bell)