CANADA FX DEBT-C$ notches limited gains as CPI data supports rate cut bets

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Canadian dollar strengthens 0.3% against the greenback

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Canada's annual inflation rate eases to 3.1%

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Price of U.S. oil falls 0.3%

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2-year yield trades near its lowest since June

By Fergal Smith

TORONTO, Nov 21 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Tuesday but the move was limited as domestic inflation data supported expectations that the Bank of Canada would shift to cutting interest rates over the coming months.

The loonie was trading 0.3% higher at 1.3685 to the greenback, or 73.07 U.S. cents, after moving in a range of 1.3683 to 1.3731.

Canada's annual inflation rate eased more than expected to 3.1% in October and core inflation measures edged down to their lowest levels in about two years.

"This is yet another confirmatory point for our view that the BoC, having led the Fed during the hiking cycle, will once again be the pace setter in the 2024 easing cycle, with a cut likely as early as April," said Simon Harvey, Head of FX analysis for Monex Europe and Monex Canada.

"Markets have been slowly aligning with this view in recent weeks, which has seen the Canadian dollar lag the G10 rally amidst the softer (U.S.) dollar environment."

Money markets have nearly fully discounted a BoC rate cut by April and see three cuts in total next year.

Speculators have raised their bearish bets on the Canadian dollar to the most since June 2017, data from the U.S. Commodity Futures Trading Commission showed on Friday.

Canada Finance Minister Chrystia Freeland is set to deliver a mid-year fiscal update after 4 p.m. EST (2100 GMT), that will show widening deficits and weak economic growth and include targeted spending to boost housing supply.

The price of oil, one of Canada's major exports, was down 0.3% at $77.61 a barrel, while Canadian bond yields were lower across the curve along with a decline in U.S. Treasury yields.

The 2-year eased 2.5 basis points to 4.389%, trading near its lowest level since June. (Reporting by Fergal Smith)