TORONTO, May 7 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Tuesday as interest rate differentials continued to count against holding the currency and ahead of a key domestic employment report this week.
The loonie was trading 0.5% lower at 1.3735 per U.S. dollar, or 72.81 U.S. cents, after trading in a range of 1.3661 to 1.3741.
"The main reason the Canadian dollar is falling is interest rate differentials," said Rahim Madhavji, president at Knightsbridge Foreign Exchange.
"The expectation still continues to be that the Bank of Canada is looking to decrease rates in June, and the Fed will also head in that direction but it is definitely in no hurry to do that."
Money markets see a roughly two-thirds chance the Canadian central bank would begin an interest rate-cutting campaign at its next policy decision on June 5, while the Fed is expected to remain on hold until September .
Canada's employment report for April, due on Friday, could offer clues on the strength of the domestic economy. Economists expect a jobs gain of 18,000 and the unemployment rate to rise to 6.2% from 6.1% in March.
Data on Tuesday showed Canadian purchasing activity rising at a faster pace in April, while the price of oil , one of Canada's major exports, settled 0.1% lower at $78.38 a barrel as easing supply concerns and signs of weakening demand countered fears of escalation in the Middle East.
Canadian government bond yields edged lower across a flatter curve. The 10-year was down 3 basis points at 3.582%, after earlier touching its lowest level since April 10 at 3.555%.
Reporting by Fergal Smith; Editing by Leslie Adler
