TORONTO: The Canadian dollar strengthened against its US counterpart on Tuesday after comments by Bank of Canada Governor Stephen Poloz supported the view the central bank will raise interest rates as early as next week.
Inflation in Canada should be well into an uptrend by the first half of 2018, Poloz told German newspaper Handelsblatt, adding that policy normalization must begin before price growth hits its target.
Top Bank of Canada officials' recent assertions that a pair of 2015 interest rate cuts did their job in cushioning the economy from collapsing oil prices appear to be paving the way for a tightening move as soon as July 12.
Chances of a rate hike next week are better than 50 percent, data from the overnight index swaps market shows.
At 9:42 a.m. ET (1342 GMT), the Canadian dollar was trading at C$1.2955 to the greenback, or 77.19 US cents, up 0.4 percent.
The currency traded in a range of $1.2955 to C$1.3018.
On Friday, the loonie touched its strongest intraday in nine months at C$1.2947. It was helped by data showing Canada's economy grew for a sixth consecutive month in April, while a central bank survey of business sentiment showed firms were feeling more upbeat.
Adding to support for the Canadian dollar, prices of oil, one of Canada's major exports, edged higher.
US crude prices were up 0.15 percent at $47.14 a barrel, extending recent gains on tentative signs a persistent rise in US crude production may be slowing.
Canadian government bond prices were lower across a steeper yield curve after reopening following the Canada Day holiday on Monday. They were pressured by Poloz's hawkish comments and by US manufacturing data on Monday that boosted expectations the Federal Reserve would raise interest rates again this year.
The two-year
price fell 5.5 Canadian cents to yield 1.131 percent and the 10-year declined 54 Canadian cents to yield 1.825 percent.
The two-year yield touched its highest intraday since October 2014 at 1.139 percent.
Canada's trade data for May is due on Thursday and the June employment report is due on Friday.
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