TORONTO, July 31 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday as preliminary domestic data showed faster-than-expected economic growth, reducing prospects the Bank of Canada would shift to cutting interest rates in larger increments.
The loonie was trading 0.3% higher at 1.3810 per U.S. dollar, or 72.41 U.S. cents, after touching its strongest intraday level since last Wednesday at 1.3788.
Canada's gross domestic product grew by 0.2% in May, Statistics Canada said, adding that a preliminary estimate for June shows the economy expanded by 0.1%, taking the quarterly economic growth rate to 2.2%.
Last week, the Bank of Canada forecast second-quarter growth of 1.5% as it cut interest rates for a second time since June, lowering its benchmark rate by 25 basis points to 4.50%.
"These latest GDP figures should tamp down talk of the Bank being wildly behind the curve, and quiet rumblings about the BoC potentially looking at a 50 bp (basis point) cut," Doug Porter, chief economist at BMO Capital Markets, said in a note.
"Canada's economy is still walking that fine line of struggling to keep upright, but just staying out of serious trouble, consistent with continued, measured interest rate cuts."
The U.S. dollar (.DXY), lost ground against a basket of major currencies as the Bank of Japan raised rates, boosting the yen, and ahead of a Federal Reserve policy decision, due at 2 p.m. ET (1800 GMT).
The price of oil, one of Canada's major exports, rebounded from 7-week lows, climbing 2.9% to $76.87 a barrel as tensions increased in the Middle East.
Canadian government bond yields were mixed across a flatter curve. The 2-year was up 2.2 basis points at 3.523%, after earlier touching its lowest level since April 2023 at 3.469%.
Reporting by Fergal Smith, Editing by Nick Zieminski
