CANADA FX DEBT-Canadian dollar rallies as BoC pauses interest rate cuts

By Fergal Smith

TORONTO, April 16 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday as the greenback posted broad-based declines and the Bank of Canada paused its interest rate cutting campaign.

The loonie CAD= was trading 0.6% higher at 1.3875 per U.S. dollar, or 72.07 U.S. cents, moving back in reach of the five-month high it touched on Monday at 1.3827.

The BoC held its benchmark rate at 2.75%, its first pause after seven consecutive cuts, and said that the uncertainty around U.S. tariffs made it impossible to issue regular economic forecasts.

Investors see a roughly 50% chance the central bank will return to easing at its next policy decision on June 4 and expect two further cuts in total by year-end. 0#CADIRPR

The U.S. dollar .DXY resumed its recent decline against a basket of major currencies as traders waited to see if U.S. President Donald Trump's administration reaches new trading agreements with partners.

"The BoC's hold is providing some support to the loonie," strategists at TD Securities, including Jayati Bharadwaj, said in a note.

"In the absence of the trade spat between Canada and US worsening and Trump diverting attention to China, we can expect better price action in CAD and positioning there has been consistently improving."

Speculators have reduced their bearish bets on the Canadian dollar to the lowest since October, data from the U.S. Commodity Futures Trading Commission showed on Friday. 1090741NNET

The price of oil, one of Canada's major exports, rose 1.8% to $62.45 a barrel after Washington issued new sanctions targeting Chinese importers of Iranian oil.

Canadian bond yields were mixed across the curve. The 10-year CA10YT=RR was up less than one basis point at 3.121% after earlier touching an eight-day low at 3.078%.