CANADA FX DEBT-Canadian dollar hits two-month low as BoC offers dovish clues on rates

By Fergal Smith

TORONTO, July 30 (Reuters) - The Canadian dollar weakened to a two-month low against its U.S. counterpart on Wednesday as the greenback posted broad-based gains and the Bank of Canada opened the door to cutting interest rates further in the coming months.

The loonie CAD= was trading 0.4% lower at 1.3822 per U.S. dollar, or 72.35 U.S. cents, after touching its weakest intraday level since May 30 at 1.3828.

"It seems to be a reaction to the Bank of Canada's statement earlier today and also the associated MPR (Monetary Policy Report)," said Bipan Rai, head of ETF and structured solutions strategy at BMO Global Asset Management.

"Amid the uncertainty and also how resilient the economy has been to tariff-related risks, if you peel that back it does look like there's a tinge of dovishness embedded within the bank's communications today that does potentially allude to the need for another cut or another couple of cuts in the one or two quarters to come."

The Bank of Canada held its benchmark interest rate at 2.75%, as expected, for the third straight policy decision. It said the risk of a severe and escalating global trade war had diminished, but if a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for lower rates.

The U.S. dollar .DXY advanced against a basket of major currencies as data showed the U.S. economy rebounding more than expected in the second quarter and after the Federal Reserve held interest rates steady.

The price of oil, one of Canada's major exports, settled 1.1% higher at $70.00 a barrel, while Canadian bond yields edged higher across a steeper curve.

The 10-year CA10YT=RR was up 1.8 basis points at 3.491%, while the gap between it and the U.S. 10-year widened by 1.6 basis points to 87.1 basis points in favor of the U.S. note.