TORONTO (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Friday but was still headed for a weekly and monthly decline as domestic gross domestic product data bolstered bets for an outsized interest rate cut from the Bank of Canada in December.
Canada's economy grew at an annualized rate of 1% in the third quarter, undershooting the Bank of Canada's forecast of 1.5%, after growing 2.2% in the prior quarter.
"I think from the bank's perspective, this is going to add to the case for another 50 basis point cut in December," said Robert Both, Canadian macro strategist at TD Securities.
Investors see a roughly 50% chance the BoC opts for a second consecutive unusually large half-percentage-point move at the Dec. 11 policy announcement, up from 31% before the data, swaps market data showed. A 25-basis-point step is fully priced into the market.
The Canadian dollar strengthened 0.1% to 1.40 per U.S. dollar, or 71.43 U.S. cents, after moving in a range of 1.3981 to 1.4045.
For the week, the loonie was down 0.1%, while it was down 0.5% for the month, its third straight monthly decline.
On Tuesday, the currency touched a 4-1/2-year low at 1.4177, buffeted by the threat of hefty U.S. tariffs on imports from Canada.
The U.S. dollar weakened on Friday against a basket of major currencies as hotter-than-expected Tokyo inflation data supported bets for a Bank of Japan interest rate hike next month.
The price of oil, one of Canada's major exports, added to its weekly decline, dipping 0.1% to $68.65 a barrel, on easing concern over supply risks from the Israel-Hezbollah conflict.
Canadian bond yields moved lower across the curve. The 10-year was down 7.7 basis points at 3.149%, after earlier touching its weakest level since Oct. 18 at 3.141%.
(Reporting by Fergal Smith; Editing by Aurora Ellis)
By Fergal Smith
