Canadian dollar pares weekly gain as economy shrinks
TORONTO, June 27 (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Friday as domestic data showed a contraction in the economy, but the currency was still headed for a weekly gain.
The loonie was trading 0.2% lower at 1.3662 per U.S. dollar, or 73.20 U.S. cents, after trading in a range of 1.3628 to 1.3664. For the week, the currency was on track to advance 0.5%.
Canada's gross domestic product fell 0.1% in April from March, led by a 0.6% decline in goods-producing industries as U.S. tariff uncertainty spurred some motor vehicle manufacturers to scale back production. A preliminary estimate showed a further decline of 0.1% in May.
"We suspect that the underlying softness in growth and employment will eventually pave the way for additional (interest) rate relief," Doug Porter, chief economist at BMO Capital Markets, said in a note.
"However, the stickiness of core inflation remains a big hurdle for near-term rate cuts; we still have exactly one month of data before the next decision."
Data on Wednesday showed underlying inflation easing in May but not by enough to bolster expectations for additional interest rate cuts from the Bank of Canada.
Investors see a 62% chance the BoC leaves its benchmark interest rate on hold at 2.75% at a policy decision on July 30 but are leaning toward a cut in September.
The U.S. dollar (.DXY), opens new tab clawed back some recent declines against a basket of major currencies and the price of oil, one of Canada's major exports, was trading 0.2% lower at $65.12 a barrel.
Oil was adding to a steep weekly decline as the absence of significant supply disruption from the Iran-Israel conflict has seen any risk premium evaporate.
Canadian government bond yields moved lower across a flatter curve. The 10-year was down 2.3 basis points at 3.317%, pulling back from an earlier one-week high at 3.377%.
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