CANADA FX DEBT-Canadian dollar weakens as interest rate spreads widen

By Fergal Smith

TORONTO, May 14 (Reuters) - The Canadian dollar edged lower against its U.S. counterpart on Wednesday as oil prices fell and interest rate spreads moved further in favor of the American currency.

The loonie CAD= was trading 0.3% lower at 1.3975 per U.S. dollar, or 71.56 U.S. cents, after trading in a range of 1.3902 to 1.3984.

Investors have moved to price in a greater-than 50% chance of a Bank of Canada interest rate cut next month after downbeat domestic jobs data last Friday.

"That creep up in interest rate expectations for the Bank of Canada is weighing on the loonie," said Amo Sahota, director at Klarity FX in San Francisco, adding that diverging prospects for BoC and Federal Reserve rate cuts have contributed to a wider gap between Canadian and U.S. short-term rates.

The Canadian 2-year yield CA2YT=RR fell 2.6 basis points further below its U.S. equivalent to a gap of 145 basis points, which is the biggest gap since April 2.

The price of oil, one of Canada's major exports, settled 0.8% lower at $63.15 a barrel as traders eyed a potential jump in U.S. crude inventories and after OPEC lowered its oil supply growth forecast for producers outside of OPEC+.

The value of Canadian building permits fell by 4.1% in March from February, with the largest decrease posted by Ontario. Canada's most populous province and industrial heartland is due to table its annual budget on Thursday.

Canadian Finance Minister Francois-Philippe Champagne indicated the new Liberal government would not present an annual budget but instead will table an economic update later in the year.

The Canadian 10-year yield CA10YT=RR rose 4.6 basis points to 3.256% as U.S. Treasury yields moved higher.