TORONTO, Oct 15 (Reuters) - The Canadian dollar steadied near a 10-week low against its U.S. counterpart on Tuesday, as investors raised bets on an outsized interest rate cut by the Bank of Canada after domestic data showed inflation falling below the central bank's 2% target.
The loonie was trading nearly unchanged at 1.3796 to the U.S. dollar, or 72.48 U.S. cents, after touching its weakest intraday level since Aug. 6 at 1.3838.
It follows nine straight days of declines for the currency, one day short of its longest losing streak since May 2017.
Canada's annual inflation rate slowed more than expected to 1.6% in September as gasoline prices tumbled.
"It's a close call, but we suspect that the big improvement in inflation, the still-high unemployment rate, and the still-sour consumer and business sentiment will be enough to prompt the Bank of Canada to opt for a 50 bp (basis point) rate cut later this month," Doug Porter, chief economist at BMO Capital Markets, said in a note.
"After all, the BoC has dovishly signalled that they are now more concerned about downside risks to the economy and the possibility that inflation may drop too low."
Investors see a 74% chance the BoC lowers its benchmark interest rate by half a percentage point at a policy decision on Oct. 23, up from roughly 50% before the data. It would be the first move greater than 25 basis points since the BoC's easing campaign began in June.
Adding to headwinds for the loonie, the price of oil , one of Canada's major exports, settled 4.4% lower at $70.58 a barrel after a media report said Israel would not strike Iranian nuclear and oil sites, easing fears of a supply disruption.
Canadian bond yields moved lower across the curve, with the 10-year down 7.2 basis points at 3.141%.
Reporting by Fergal Smith, editing by Nick Zieminski
