By Fergal Smith TORONTO (Reuters) – The Canadian dollar strengthened against its U.S. counterpart on Friday, and was headed for a monthly gain, as stronger-than-expected Canadian economic growth bolstered expectations the Bank of Canada would continue to leave interest rates on hold at a policy decision next week. The loonie was trading 0.4% higher at 1.3750 per U.S. dollar, or 72.73 U.S. cents, after moving in a range of 1.3740 to 1.3829. For the month, the currency was on track to gain 0.3%.

That would be its fourth straight monthly advance, the longest such stretch since May 2021. Canadian gross domestic product increased at an annualized rate of 2.2% in the first quarter, eclipsing the 1.7% rise that economists had expected, as U.S. companies rushed to stockpile Canadian goods before the implementation of tariffs. A separate report showed GDP rising 0.1% in March from February, while a preliminary estimate for April also showed a gain of 0.1%.

"The odds favour a hold at next week’s Bank of Canada meeting," Karl Schamotta, chief market strategist at Corpay, said in a note. It's possible "that the flow of credit into Canadian households unleashed by last year’s rate-cutting cycle is translating into more spending power," Schamotta added. Investors see a roughly 75% chance the BoC leaves its benchmark interest rate unchanged at 2.75% on Wednesday.

The central bank moved to the sidelines in April for the first time since its easing campaign began last June. The price of oil, one of Canada's major exports, was trading 1.2% lower at $60.20 a barrel as investors weighed prospects of a potentially larger OPEC+ output hike for July. The Canadian 10-year yield was little changed at 3.205% as U.S. Treasury yields declined following data that showed American inflation was in line with expectations last month.

(Reporting by Fergal Smith; Editing by Andrea Ricci)