Loonie hits 4-week high as rate-cut bets fall on higher inflation

TORONTO: The Canadian dollar strengthened to a four-week high against the greenback on Wednesday as bets on a Bank of Canada interest rate cut this year were checked by domestic data showing higher underlying inflation and a narrower trade deficit.

Canada's annual inflation rate edged up to 1.9% in March from 1.5% in February, while two out of three of the Bank of Canada's measures of core inflation edged up into the 2.0% range, Statistics Canada data indicated.

Separate data from Statistics Canada showed Canada's trade deficit declined for a second straight month in February, falling slightly to C$2.9 billion, after reaching a record high of C$4.8 billion in December 2018.

Chances of an interest rate cut this year fell to less than 20% from about 25% before the data, the overnight index swaps market indicated.

At 9:27 a.m. (1327 GMT), the Canadian dollar was trading 0.4% higher at 1.3293 to the greenback, or 75.23 US cents. The currency touched its strongest intraday level since March 20 at 1.3275.

The gain for the loonie came as upbeat economic data from China lifted investor sentiment.

The price of oil, one of Canada's major exports, was boosted by China's data and a fall in US crude stocks which defied expectations and signaled firm demand.

US crude prices were up 0.4% at $64.31 a barrel.

A right-of-center party swept to power in Canada's main oil-producing province of Alberta on Tuesday and attacked Prime Minister Justin Trudeau's efforts to fight climate change, raising tension just months ahead of a federal election.

Canadian government bond prices were lower across the yield curve, with the two-year down 7.5 Canadian cents to yield 1.673% and the 10 years falling 34 Canadian cents to yield 1.823.

The gap between Canada's two-year yield and its US equivalent narrowed by 4 basis points to a spread of 74 basis points in favor of the US bond.