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TORONTO: The Canadian dollar rose against the greenback on Thursday as investors cheered a potential deal to avoid a default on U.S. government debt and the Bank of Canada said that the factors driving inflation were more persistent than expected.

The loonie was trading 0.3pc higher at 1.2547 to the greenback, or 79.70 U.S. cents, after touching its strongest level since Sept. 7 at 1.2540.

The currency benefited from the uptick in risk appetite, said Eric Theoret, global macro strategist at Manulife Investment Management.

"We are seeing a classic risk-on move," Theoret said.

U.S. stocks climbed in a broad-based rally after a temporary truce in the debt-ceiling standoff in the U.S. Congress relieved concerns of a possible government debt default later this month.

Canada is a major producer of commodities, including oil, so the loonie tends to be sensitive to shifts in risk appetite.

Canadian dollar steadies as imports decline boosts trade surplus

U.S. crude oil futures settled 1.1pc higher at $78.30 a barrel as the market deemed it unlikely that the United States would release emergency crude reserves or ban exports to ease tight supplies.

Still, analysts see less room for the Canadian dollar to gain ground over the coming year as the prospect of slower global economic growth and accelerating inflation undermine support from higher oil prices.

The factors influencing Canada's red-hot inflation are proving more persistent than previously thought, but there are "good reasons to believe" they remain temporary, Bank of Canada Governor Tiff Macklem said.

Canada's jobs report for September is due on Friday, which could offer clues on the strength of the domestic economy.

Canadian government bond yields were higher across the curve.

The 10-year rose as much as 5 basis points to 1.559pc, its highest level since May 21, while the 2-year touched its highest since March last year at 0.626pc.

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