By Fergal Smith

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 FX_IDC:USDCAD 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. (0#CADIRPR)

  • 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.