* Canadian dollar falls 0.4% against the greenback
* Price of U.S. oil decreases 0.5%
* Canadian factory activity shrinks for first time in three years
* Canada-U.S. 2-year spread widens by 3 basis points
By Fergal Smith
TORONTO, May 1 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Wednesday, pulling back from an earlier eight-day high as oil prices fell and the Federal Reserve tempered expectations for an interest rate cut this year.
Federal Reserve Chairman Jerome Powell said a decline in inflation this year could be due to transitory factors, after the U.S. central bank's meeting statement struck a cautious tone on inflation. who had dreams of the Fed cutting rates or anything else, that's been put to bed," said Colin Cieszynski, chief market strategist at SIA Wealth Management.
"People are recognizing the U.S. economy is doing pretty well, particularly relative to other countries, and their dollar is starting to go up and that's pushing ours down," Cieszynski added.
The U.S. dollar .DXY rallied against a basket of major currencies, while the price of oil, one of Canada's major exports, declined after U.S. crude inventories in the United States soared more than expected to their highest since September 2017. crude oil futures CLc1 settled 0.5% lower at $63.60 a barrel.
At 3:53 p.m. (1953 GMT), the Canadian dollar CAD=D4 was trading 0.4% lower at 1.3439 to the greenback, or 74.41 U.S. cents. The currency's weakest intraday level was 1.3461, while it touched its strongest since April 23 at 1.3378.
The decline for the loonie came as domestic data for April showed that auto sales dropped 3.5 percent and that factory activity contracted for the first time in more than three years. central bank is buying time for the economy to exit a soft patch without the aid of lower interest rates, economists say, by forecasting growth so weak it would take a surprise blow to activity for the economy to undershoot its estimates. government bond prices were mixed across a flatter yield curve in sympathy with U.S. Treasuries. The two-year CA2YT=RR fell 2.5 Canadian cents to yield 1.576% and the benchmark 10-year CA10YT=RR was up 2 Canadian cents to yield 1.710%.
The gap between the 2-year yield and its U.S. equivalent widened by 3 basis points to a spread of 73.4 basis points in favor of the U.S. bond.