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Canadian dollar hits 8-month low on dovish Bank of Canada

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar weakened to an eight-month low against its U.S. counterpart on Thursday as investors grew confident the Bank of Canada would continue to ease policy following its latest interest rate cut the day before.

The loonie was trading 0.1% lower at 1.3815 per U.S. dollar, or 72.39 U.S. cents, after touching its weakest intraday level since Nov. 10 at 1.3848.

"The market thinks that the Bank of Canada delivered a dovish cut," said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC. "The market feels more confident after the meeting that there will be another cut in September."

The Bank of Canada is shifting its focus to boosting the economy rather than suppressing inflation, which raises prospects of further interest rate cuts in the coming months, analysts say.

Investors see a roughly 60% chance the BoC will cut rates again at its next policy decision in September after the central bank on Wednesday lowered its policy rate by 25 basis points for a second time in two months to 4.50%.

Unwinding of short yen positions have also weighed on the loonie in recent days, Chandler said, adding that a popular trade for hedge funds has been to short the yen and go long on higher yielding currencies such as the loonie, as well as the Australian and New Zealand dollars.

The price of oil, one of Canada's major exports, rose after stronger-than-expected U.S. economic data stoked expectations for higher crude demand. U.S. crude oil futures were up 1% at $78.35 a barrel

Canadian government bond yields were mixed across a flatter curve. The 2-year was up 1.8 basis points at 3.650%, after earlier touching its lowest level since May last year at 3.559%.

(Reporting by Fergal Smith; Editing by Sandra Maler)