* Canadian dollar gains 0.2% against the greenback
* Canada inflation rate rises in May to a 7-mth high at 2.4%
* Loonie touches its strongest since Friday at 1.3337
* Canada-U.S. 2-yr spread at narrowest since March 2018
By Fergal Smith
TORONTO, June 19 (Reuters) - The Canadian dollar strengthened to a five-day high against its U.S. counterpart on Wednesday, as investors reduced bets on a Bank of Canada interest rate cut this year after domestic data showing greater-than-expected inflation.
Canada's annual inflation rate rose to 2.4% in May, its highest in seven months, while two of the Bank of Canada's three core measures of inflation also climbed, Statistics Canada data indicated. Analysts had expected the annual rate to edge up to 2.1% from 2.0% in April. you're looking to see if the Bank of Canada is easing anytime soon, forget it," said Derek Holt, vice president of capital markets economics at Scotiabank. "Inflation is on target, not signaling any big urgency to ease policy."
Chances of a Bank of Canada interest rate cut this year fell to less than 40% from about 50% before the data, the overnight index swaps market indicated. BOCWATCH
At 9:12 a.m. EDT (1312 GMT), the Canadian dollar CAD=D4 traded 0.2% higher at 1.3355 to the greenback, or 74.88 U.S. cents. The currency, which was boosted on Tuesday by the revival of trade talks between the United States and China, touched its strongest since last Friday at 1.3337. for the loonie on Wednesday came as investors awaited an interest rate decision from the U.S. Federal Reserve. The Fed is expected to leave borrowing costs unchanged but possibly lay the groundwork for a rate cut later this year. price of oil, one of Canada's major exports, fell as data suggesting a smaller-than-expected fall in U.S. crude inventories countered support from hopes for a U.S.-China trade deal. U.S. crude oil futures CLc1 were down 0.5% at $53.64 a barrel. government bond prices were lower across the yield curve, with the two-year CA2YT=RR price down 12 Canadian cents to yield 1.468% and the benchmark 10-year CA10YT=RR falling 60 Canadian cents to yield 1.486%.
The gap between Canada's 2-year yield and its U.S. equivalent narrowed by 2.5 basis points to a spread of 43.4 basis points in favor of the U.S. bond, its smallest gap since March 2018.
Separate Canadian data showed that home prices climbed for the first time in nine months in May as the housing market benefited from lower borrowing costs and from an economy that was adding jobs.