TORONTO, May 2 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Thursday for a second straight day as equity markets climbed and the Bank of Canada said there is a limit to how much U.S. and Canadian interest rates can diverge.
The loonie was trading 0.4% higher at 1.3685 to the U.S. dollar, or 73.07 U.S. cents, after trading in a range of 1.3681 to 1.3742.
"The Canadian dollar has clearly been benefiting from broad USD selling on the back of the stock market recovery," said Erik Bregar, director, FX & precious metals risk management at Silver Gold Bull.
Wall Street's main indexes advanced, a day after the Federal Reserve left interest rates unchanged and signaled a dovish tilt, with focus moving to a crucial job report on Friday.
The loonie has been pressured in recent weeks by a wider gap between U.S. and Canadian yields as investors anticipated a delayed start to Fed rate cuts.
There is a limit to how far U.S. and Canadian interest rates can diverge but "certainly we're not close to that limit", Bank of Canada Governor Tiff Macklem told the House of Commons finance committee.
Canada in March recorded a surprise trade deficit of C$2.28 billion ($1.66 billion), the largest in nine months, as exports declined faster than imports, data showed.
Canadian government bond yields moved lower across the curve, tracking moves in U.S. Treasuries. The 10-year was down 3.1 basis points at 3.727%, its lowest level since April 19.
Reporting by Fergal Smith; editing by Jonathan Oatis
