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Market News Canadian dollar dips as rally on expected Fed easing pauses

The Canadian dollar weakened against its U.S. counterpart on Tuesday, with the currency extending its pullback from a three-month high the day before, as a rally driven by more dovish expectations for the Federal Reserve lost some momentum.

At 4:02 p.m. (2002 GMT), the Canadian dollar was trading 0.1 per cent lower at 1.3284 to the greenback, or 75.28 U.S. cents. The currency, which on Monday touched its strongest intraday level since March 1 at 1.3226, traded in a range of 1.3251 to 1.3309.

The loonie’s rally ran “out of steam” ahead of 1.32 after the currency had benefited from a sharp rise in expectations for Federal Reserve interest rate cuts, said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York.

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More gains for the Canadian dollar could come if the Fed were to signal at next week’s interest rate announcement that it is going to ease in July and if oil prices start to recover, Anderson said.

Money markets see a greater than 80 per cent chance that the Fed will cut interest rates as soon as next month and are also expecting at least one further cut before the end of the year.

The decline for the loonie came as U.S. President Donald Trump defended the use of tariffs as part of his trade strategy, while China vowed a tough response if the United States insists on escalating trade tensions amid ongoing negotiations.

Canada runs a current account deficit and exports many commodities, including oil, so its economy could be hurt by a slowdown in the global flow of trade or capital.

The price of oil was little changed as concerns about a global economic slowdown offset expectations that OPEC and its allies will extend their supply curbs. U.S. crude oil futures settled 1 cent higher at $53.27 a barrel.

Canadian government bond prices edged lower across a flatter yield curve, with the two-year down 3.5 Canadian cents to yield 1.479 per cent and the 10-year falling 6 Canadian cents to yield 1.528 per cent.

The 10-year yield touched its highest intraday since May 31 at 1.543 per cent.

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