TORONTO, June 4 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Tuesday as oil prices fell and investors braced for the potential start this week of an interest rate cutting campaign by the Bank of Canada.
The loonie was trading 0.4% lower at 1.3680 to the U.S. dollar, or 73.10 U.S. cents, after trading in a range of 1.3621 to 1.3698.
Investors see a roughly 80% chance the BoC would cut its benchmark interest rate on Wednesday for the first time since March 2020, swap market data shows.
The policy rate has been on hold since the central bank raised it to a 22-year high of 5% last July.
"A June cut will weigh on CAD as markets tend to add more cuts after the first move," strategists at TD Securities, including Jayati Bharadwaj, said in a note.
The strategists recommended going long USD-CAD call spreads to take advantage of expected policy divergence between the BoC and the Federal Reserve.
A call spread involves buying a call option while at the same time selling another call at a higher strike.
The Canadian central bank would be willing to cut interest rates three times ahead of the Fed's first move before a declining currency threatens to endanger the inflation outlook, the median estimate of seven analysts in a straw poll last month showed.
The price of oil, one of Canada's major exports, fell on scepticism about an OPEC+ decision to boost supply later this year into a global market where demand has already shown signs of weakness. U.S. crude oil futures were down 0.8% at $73.60 a barrel.
Canadian government bond yields eased across the curve, tracking moves in U.S. Treasuries. The 10-year was down 8.2 basis points at 3.432%, its lowest level since March 21.
Reporting by Fergal Smith Editing by Marguerita Choy
