TORONTO, May 21 (Reuters) - The Canadian dollar strengthened to a nearly two-week high against its U.S. counterpart on Wednesday as the greenback posted broad-based declines and investors dialed back bets on the Bank of Canada resuming its easing campaign next month.
The loonie was trading 0.6% higher at 1.3832 per U.S. dollar, or 72.30 U.S. cents, after touching its strongest intraday level since May 8 at 1.3815.
"We've seen some follow-through gains in the Canadian dollar today on the heels of yesterday's stronger-than-expected Canadian CPI data, as the market reduces pricing for a rate cut at the June BoC meeting," said George Davis, chief technical strategist at RBC Capital Markets.
"Canadian bond market underperformance relative to the U.S. has been a theme that has helped sustain CAD gains today and that has been amplified by broader-based USD weakness as well."
Domestic data on Tuesday showed that underlying inflation heated up in April. Investors see a 27% chance of a BoC rate cut at the June 4 policy announcement, down from 65% before the inflation report, swaps market data shows.
The central bank left its benchmark rate on hold at 2.75% last month, the first pause since the easing campaign began last June.
The U.S. dollar (.DXY), fell against a basket of major currencies amid uncertain prospects for the Trump administration's tax cut and spending bill.
Investors were also wary of U.S. officials potentially angling for a weaker dollar as part of independent trade deals on the sidelines of Group of Seven finance minister meetings under way in Canada.
Finance ministers from the G7 will try to agree on policies to restore global growth and stability, Canadian Finance Minister Francois-Philippe Champagne said.
The Canadian 2-year yield was up 6.6 basis points at 2.713%.
The gap between it and the U.S. equivalent narrowed by 1.9 basis points to roughly 1.30 basis points in favor of the U.S. note.
Reporting by Fergal Smith Editing by Rod Nickel
