TORONTO, June 12 (Reuters) - The Canadian dollar strengthened on Thursday to an eight-month high against its U.S. counterpart as U.S. economic data supported expectations the Federal Reserve would renew its interest rate cutting campaign in the coming months.
The loonie was trading 0.5% higher at 1.3606 per U.S. dollar, or 73.50 U.S. cents, its strongest intraday level since October 7.
"The loonie is extending recent gains on its own merits this week," said Amo Sahota, director at Klarity FX in San Francisco.
"Central bank outlooks moved further to support a narrowing U.S.-CAD yield spread with U.S. inflation soft enough to give the Fed room to cut in September if the U.S. economy stalls."
The U.S. dollar fell 0.7% against a basket of major currencies as the number of Americans filing new applications for unemployment benefits held at an eight-month high last week, while slowing domestic demand helped to restrain U.S. producer prices in May.
"Market participants have welcomed Canada's commitment to bringing forward defense spending, a sign that Canada is checking off criticism from the U.S. ahead of trade talks," Sahota said.
Canada will hit NATO's military spending target of 2% of GDP this fiscal year, five years earlier than promised, Prime Minister Mark Carney said on Monday.
U.S. Treasury Secretary Scott Bessent said he expects to attend the Group of Seven leaders meeting in Canada, which begins on Sunday, with President Donald Trump, and he expects the two of them will meet with Carney.
The price of oil, one of Canada's major exports, added to the previous session's sharp gains as market participants assessed tensions in the Middle East. U.S. crude oil futures were up 0.1% at $68.20 a barrel.
The Canadian 10-year yield eased 2.9 basis points to 3.321%, while the gap between it and the equivalent U.S. rate narrowed by 3.2 bps to about 103 bps in favor of the U.S. note. That's the narrowest spread since November 28.
Reporting by Fergal Smith; Editing by Kirsten Donovan
