C$ hits 2-week low as CPI data bolsters rate cut bets

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar steadied near an earlier two-week low against its U.S. counterpart on Tuesday as cooler-than-expected domestic inflation data fueled bets for another Bank of Canada interest rate cut this month.

The loonie was trading nearly unchanged at 1.3685 to the U.S. dollar, or 73.07 U.S. cents, after touching its weakest intraday level since July 2 at 1.3707.

Canada's annual inflation rate cooled to 2.7% in June, largely due to softer growth in gas prices, while core inflation measures were marginally down. Analysts had forecast the inflation rate would ease to 2.8% from 2.9% in May.

"June's CPI print was a small relief after an upside surprise in May," Claire Fan, an economist at Royal Bank of Canada, said in a note.

"All told, we expect the BoC will carry on with easing the monetary brakes on a weak economy, and follow up with another rate cut at its July meeting next week."

Investors see a roughly 90% chance the BoC will cut rates on July 24, up from 82% before the data. Last month, the BoC became the first G7 central bank to begin easing policy, lowering its benchmark rate by 25 basis points to 4.75%.

Separate data showed Canadian housing starts falling 9% in June as groundbreaking decreased on multiple unit urban homes.

The U.S. dollar rose against a basket of major currencies as U.S. data showed strength in the underlying trend for retail sales, while the price of oil, one of Canada's major exports, fell on worries of a slowing Chinese economy.

U.S. crude oil futures were down 1.6% at $80.59 a barrel.

The Canadian 10-year yield was down 4.6 basis points at 3.372%, while it moved 2.3 basis points further below its U.S. equivalent to a gap of 83.4 basis points.

(Reporting by Fergal Smith; Editing by Christina Fincher)