TORONTO, June 30 (Reuters) - The Canadian dollar steadied against its U.S. counterpart on Tuesday, but was on track for its largest monthly decline in nearly two years, as domestic data showed stronger-than-expected economic growth and ahead of a deadline to renew the U.S.-Mexico-Canada Agreement on trade.
The loonie was trading nearly unchanged at 1.4205 per U.S. dollar, or 70.40 U.S. cents, after moving in a range of 1.4184 to 1.4247.
Since the start of June, the currency has weakened 2.9%, which would be its steepest monthly decline since October 2024, as Canadian bond yields fell further below U.S. yields.
Canada's gross domestic product increased 0.5% in April from March, marking the largest monthly expansion in nine months and allaying concerns that a tariff-led slowdown in the economy was getting more entrenched.
Economists had forecast a gain of 0.4%, while a preliminary estimate for May showed growth of 0.1%.
"Canada’s economy never entered any credible definition of recession, but growth is rebounding nicely in the second quarter," Derek Holt, head of capital markets economics at Scotiabank, said in a note.
U.S. President Donald Trump's administration is expected to formally declare on Wednesday that it will not extend USMCA, known as CUSMA in Canada, starting a decade-long clock to wind down the 32-year-old North American free trade zone as the three countries haggle over proposed changes.
"The upcoming CUSMA negotiations will be critical for the path of economic activity," Tiago Figueiredo, a macro strategist at Desjardins, said in a note. "For now central bankers are likely to remain on the sidelines until the economy and inflation provide clearer signals."
Investors expect the Bank of Canada to leave its benchmark interest rate on hold at 2.25% on July 15, while they have cut their bets in recent weeks on a rate hike by year-end.
The Canadian 10-year yield rose one basis point to 3.384% ahead of an early close for the market and the Canada Day holiday on Wednesday.
Foreign investors are buying Canada's federal bonds in record amounts, easing the cost of funding Prime Minister Mark Carney's expensive nation-building projects but potentially introducing more volatility to Canada's debt market.
Reporting by Fergal Smith in Toronto; Editing by Matthew Lewis
