Loonie falls as investors await Fed rate decision

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch

TORONTO (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Tuesday, hovering around a one-month low it hit on Friday, ahead of the widely expected interest rate cut by the Federal Reserve this week.

Money markets are convinced the Fed will cut the key benchmark rate by 25 basis points, but it remains to be seen whether this is going to be a one-off cut or whether more cuts will follow.

At 9:10 a.m. (1310 GMT), the Canadian dollar CAD=D4 was trading 0.1% lower at 1.3177 to the greenback, or 75.89 U.S. cents. The currency on Friday touched its weakest intraday level in nearly one month at 1.3199.

The Bank of Canada left its benchmark interest rate unchanged at 1.75% this month but highlighted the risks that trade wars posed to the global economy.

Canada’s gross domestic product data for May is due on Wednesday, with a Reuters poll forecasting a 0.1% increase, which could help guide expectations for the direction of interest rates.

Meanwhile, the price of oil, one of Canada’s major exports, rose for a fourth day on Tuesday on optimism the Fed will cut interest rates for the first time in more than 10 years, supporting fuel consumption in the world’s biggest oil user.

U.S. crude oil futures CLc1 were up 0.4% to 57.07 a barrel.

Canadian government bond prices were lower across the yield curve, with the two-year CA2YT=RR down 1 Canadian cent to yield 1.495% and the 10-year CA10YT=RR falling 1 Canadian cent to yield 1.477%.

The gap between Canada’s 10-year yield and its U.S. equivalent widened by 0.5 basis points to a spread of 58.4 basis points in favor of the U.S. bond, the widest gap since June 19.

Reporting by Levent Uslu; Editing by Nick Zieminski