Canadian dollar gains 0.3% against the greenback
Touches its strongest since October 9 at 1.3662
Downturn in Canada's servces economy eases in May
Bond yields fall less than U.S. Treasury yields
By Fergal Smith
TORONTO, June 4 (Reuters) - The Canadian dollar strengthened to a near eight-month high against its U.S. counterpart on Wednesday as the Bank of Canada refrained from cutting interest rates for a second straight policy meeting and the U.S. dollar posted broad-based declines.
The Canadian currency CAD= was trading 0.3% higher at 1.3680 per U.S. dollar, or 73.10 U.S. cents, after touching its strongest intraday level since October 9 at 1.3662.
The BoC held its benchmark rate at 2.75%, as expected, citing the need to probe the effects of U.S. trade policy, but said another cut might be necessary if the economy weakened in the face of tariffs. The central bank moved to the sidelines in April after easing 2-1/4 percentage points since June 2024.
"The market was priced for no cut so the bank took the free pass," said Darcy Briggs, a portfolio manager at Franklin Templeton Canada.
"They will be active (in cutting rates) in the second half of the year, most likely ... I think they're waiting to see how the growth profile shapes up."
The downturn in Canada's services economy eased somewhat in May as firms grew more hopeful that trade and political uncertainty would become less of a drag on activity over the coming 12 months, S&P Global's Canada services PMI data showed. The headline Business Activity Index was at 45.6 last month, its highest level since February.
Investors see a 45% chance the central bank resumes its easing campaign in July, while the market is pricing in 36 basis points of additional easing in total by the end of the year, down from 42 basis points before the rate decision, overnight index swap market data showed. 0#CADIRPR
The U.S. dollar .DXY fell against a basket of major currencies after weaker-than-expected U.S. private payrolls data highlighted continued easing in the labor market, while the price of oil one of Canada's major exports, was weighed by ongoing OPEC+ output increases. U.S. crude oil futures CLc1 fell 1.4% to 62.50 a barrel.
Canadian bond yields fell across the curve but the move was not as much as for U.S. Treasury yields. The 10-year CA10YT=RR was down 3.7 basis points at 3.239%.
(Reporting by Fergal Smith; Editing by Sharon Singleton)
((fergal.smith@thomsonreuters.com; +1 647 480 7446))