TORONTO, Aug 27 (Reuters) - The Canadian dollar strengthened to a five-month high against its U.S. counterpart on Tuesday, helped by recent broad-based selling of the American currency and ahead of domestic GDP data this week that could guide bets on Bank of Canada rate cuts.
The loonie was trading 0.2% higher at 1.3460 to the U.S. dollar, or 74.29 U.S. cents, after touching its strongest intraday level since March 23 at 1.3452.
"The Canadian dollar is rallying based on broad-based U.S. dollar selling and the moves are a little exaggerated just because of thin summer markets," said Rahim Madhavji, president at KnightsbridgeFX.com.
Currency moves remain driven by the prospect of upcoming U.S. interest rate cuts. Investors see a rate cut at the Federal Reserve's September meeting as all but certain, with debate now focused on the possibility of a 50-basis-point cut instead of 25.
"All eyes are on the Fed but also Canadian economic data," Madhavji said. "A weak (GDP) data print would weaken the loonie with the expectation that the Bank of Canada is going to cut rates faster than the Fed."
Economists expect Canadian gross domestic product data, due on Friday, to show the economy expanding at an annualized pace of 1.6% in the second quarter. The BoC's most recent forecast is for a gain of 1.5%.
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The price of oil, one of Canada's major exports, was down 2.3% at $75.67 a barrel on Tuesday on worries that slower economic growth in the U.S. and China could reduce demand for energy.
Canadian government bond yields moved higher across the curve. The 10-year was up 2.5 basis points at 3.082%, after earlier touching its highest level since Aug. 12 at 3.106%.
Reporting by Fergal Smith, Editing by Nick Zieminski
