(Adds strategist quotes and details throughout; updates prices)
* Canadian dollar rises 0.6% against the greenback
* Canada adds 27,700 jobs in May
* Loonie gains 1.8% for the week
* Canada-U.S. 2-year spread touches narrowest since March 2018
By Fergal Smith
TORONTO, June 7 (Reuters) - The Canadian dollar strengthened to an 11-week high against its U.S. counterpart on Friday as domestic data showing a record low unemployment rate supported the Bank of Canada's view that the economy will pick up.
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. think the fundamental story for Canada looks ok," said Amo Sahota, director at Klarity FX in San Francisco.
Bank of Canada Governor Stephen Poloz "keeps telling us don't worry guys, the second half of the year we are going to be better ... I think this week's data will make him look good, I think it justifies his call at the moment," Sahota said.
The Bank of Canada has said that a slowdown in the domestic economy was temporary. 4:01 p.m. (2001 GMT), the Canadian dollar CAD=D4 was trading 0.6% higher at 1.3280 to the greenback, or 75.30 U.S. cents. The currency touched its strongest level since March 20 at 1.3263.
For the week, the loonie was up 1.8%, its strongest performance since January.
Still, speculators have raised their bearish bets on the Canadian dollar for the first time in three weeks, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed. As of June 4, net short positions had increased to 41,759 contracts from 39,423 in the prior week.
Investors worry that potential U.S. tariffs on Mexican goods 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. price of oil climbed further from five-month lows hit this week, after Saudi Arabia said OPEC was close to agreeing to extend an output production cut beyond June. U.S. crude oil futures settled CLc1 2.7% higher at $53.99 a barrel. government bond prices edged lower across much of the yield curve, with the 10-year CA10YT=RR falling 1 Canadian cent to yield 1.460%.
The gap between Canada's 2-year yield and its U.S. equivalent narrowed by 4.8 basis points to a spread of 45.1 basis points in favor of the U.S. bond, its narrowest gap since March last year.