TORONTO, June 25 (Reuters) - The Canadian dollar edged higher against its U.S. counterpart on Tuesday as domestic data showed inflation heating up in May, raising doubt the Bank of Canada would move to cut interest rates further as soon as next month.
The loonie was trading 0.1% higher at 1.3645 per U.S. dollar, or 73.29 U.S. cents, after trading in a range of 1.3632 to 1.3680.
Canada's annual inflation rate unexpectedly accelerated to 2.9% in May from 2.7% in April while key measures of core inflation edged up for the first time in five months.
"Swap-implied odds on a cut at the Bank of Canada's July meeting are falling below pre-release levels, triggering a modest rally in the Canadian dollar against the greenback," Karl Schamotta, chief market strategist at Corpay, said in a note.
Investors see a 46% chance that the BoC will cut rates at its next policy decision on July 24, down from 65% before the data, swaps market data showed.
Earlier this month, the BoC became the first G7 central bank to begin easing, lowering its benchmark rate by 25 basis points to 4.75%.
The U.S. dollar (.DXY), opens new tab strengthened against a basket of major currencies while the price of oil , one of Canada's major exports, was down 0.3% at $81.41 a barrel.
Canadian government bond yields moved higher across the curve. The 10 year was up 8 basis points at 3.412%, while the gap between it and the U.S. equivalent narrowed by 8.1 basis points to 83.5 basis points in favor of the U.S. note.
Reporting by Fergal Smith; Editing by Anil D'Silva
