TORONTO, Feb 13 (Reuters) - The Canadian dollar strengthened to a two-month high against its U.S. counterpart on Thursday as U.S. bond yields declined and a key level of support for the American currency gave way.
The loonie was trading 0.5% higher at 1.4235 per U.S. dollar, or 70.25 U.S. cents, after touching its strongest intraday level since December 13 at 1.4211.
"Today's move lower in U.S. yields has weakened the USD across the board, thereby allowing CAD to post gains," said George Davis, chief technical strategist at RBC Capital Markets.
"Prices broke below strong support at 1.4265 which has contained selloffs in USD-CAD for the past week or so, with the break lower triggering some stops on long positions."
U.S. Treasury yields fell and the greenback posted losses against a basket of major currencies after components of the U.S. producer price report for January indicated that core PCE inflation, the Federal Reserve's preferred inflation measure, is likely to be lower than previously thought when it is released later this month.
Adding to support for the loonie, investors have dialed back expectations for a March interest rate cut from the Bank of Canada.
The swaps market is pricing in a 44% chance, down from 85% before last week's move by U.S. President Donald Trump to delay a 25% tariff on goods from Mexico and Canada for a month.
Trump said he plans to unveil reciprocal tariffs on Thursday afternoon but gave no details about his latest tariff plan, which could take aim at every country that charges duties on U.S. imports.
Canadian government bond yields fell across a flatter curve, tracking the moves in U.S. Treasuries.
The 10-year was down 7.4 basis points at 3.105%, after earlier touching its highest level since January 29 at 3.198%.
Reporting by Fergal Smith; Editing by Aurora Ellis
