CANADA FX DEBT-Canadian dollar notches biggest weekly gain in five years

By Fergal Smith

TORONTO, April 11 (Reuters) - The Canadian dollar strengthened to a five-month high against its U.S. counterpart on Friday as the erratic nature of U.S. trade policy weighed on the greenback and ahead of a potential pause in the Bank of Canada's interest rate cutting campaign.

The loonie CAD= was trading 0.7% higher at 1.3880 per U.S. dollar, or 72.05 U.S. cents, after touching its strongest intraday level since November 6 at 1.3840.

For the week, the currency was up 2.4%, its sixth straight weekly gain and the biggest since June 2020.

"The back-and-forth on the tariff front has caused the market to question the credibility of the U.S. administration as well as raise concerns over the U.S. economic outlook," said George Davis, chief technical strategist at RBC Capital Markets.

"Bond and stock market selloffs point to investors exiting U.S. assets in response, with resulting pressure on the U.S. dollar serving as a benefit to the Canadian dollar."

The U.S. dollar .DXY fell against a basket of major currencies and benchmark U.S. 10-year Treasury yields were on track for their biggest weekly increase in more than two decades.

U.S. consumer sentiment deteriorated sharply in April and 12-month inflation expectations surged to the highest level since 1981.

Investors see a roughly 60% chance the Bank of Canada pauses its easing campaign at a policy decision on Wednesday. 0#CADIRPR

Last month, the central bank lowered its benchmark interest rate to 2.75% and said it would "proceed carefully with any further changes" to rates given the need to assess both the upward pressures on inflation from higher costs and the downward pressures from weaker demand.

Canadian bond yields moved higher across the curve but the move was less than for U.S. Treasury yields.

The 10-year CA10YT=RR was up 2.7 basis points at 3.269%, after earlier touching its highest level since January 24 at 3.309%.