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The Canadian dollar CADUSD edged lower against its U.S. counterpart on Tuesday as oil prices fell and investors priced in some risk that the Bank of Canada would signal the start of an interest rate cutting campaign at this week’s policy decision.

Money markets expect the Canadian central bank to leave its benchmark rate on hold at a 22-year high of 5 per cent on Wednesday but to then begin cutting in June.

“Even if the Bank of Canada does not cut rates tomorrow, the market seems to be positioned for either a dovish comment or further weakness in the Canadian dollar,” said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC.

Speculators have raised their bearish bets on the Canadian dollar to the highest since December, data from the U.S. Commodity Futures Trading Commission showed on Friday.

“The case (for a rate cut) is building … inflation has fallen more than expected for the past two months and the unemployment rate is up to 6.1 per cent from 5 per cent a year ago,” Chandler said.

The Canadian dollar was trading 0.1 per cent lower at 1.3585 to the U.S. dollar, or 73.61 U.S. cents, after trading in a range of 1.3548 to 1.3598. On Friday, it touched a three-month low at 1.3647.

U.S. crude oil futures settled down 1.4 per cent at $85.20 a barrel, giving back some recent gains for a second day. Oil is one of Canada’s major exports.

Canadian government bond yields moved lower across the curve, tracking moves in U.S. Treasuries after a former Federal Reserve official said that three interest rate cuts remain likely this year.

The 10-year was down 6.4 basis points at 3.562 per cent, after approaching on Monday the top of its range for the past few months.

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