Canadian currencyAdam Korzekwa adam@korzekwa./Getty Images/iStockphoto
The Canadian dollar closed more than a penny higher against the U.S. greenback Wednesday in its biggest single-day gain in nearly seven months.
The loonie was up 1.27 cents at $1.0303 (U.S.), moving higher after data showed inflationary pressure in Canada continued to build in May and on news that Greece had passed unpopular but necessary austerity measures.
It reached an intra-day high of $1.0329, the highest since mid-May. The one-day increase at the close was the highest since early December.
Canada's annual inflation rate jumped to the highest level in eight years last month, rising to 3.7 per cent, much higher than economists had expected.
That prompted speculation that the Bank of Canada may have to raise interest rates earlier than expected. That raises the possibility of a wider spread between Canadian and U.S. interest rates, which would attract more investors.
"The data suggests that while a soft patch of economic growth is likely to keep the Bank of Canada on the sidelines for now," said Emanuella Enenajor, an economist at CIBC World Markets Inc.
"The pick-up in underlying price momentum is a trend the inflation-targeting central bank can't ignore - one factor suggesting rate hikes before year-end."
A spike in commodity prices also drove the loonie higher as traders appeared upbeat about the Greek debt situation and its impact on the global recovery.
Crude for August delivery added $1.88 to $94.77 on the New York Mercantile Exchange after earlier trading above $95 a barrel. Over two days, oil has recovered the loss from last Thursday when the U.S. and other oil-importing countries said they'd dump emergency oil supplies onto the market.
The August gold contract gained $10.20 to $1,510.40 an ounce, while copper prices rose 12 cents to $4.21 per pound.
The loonie also rallied alongside the euro as Greece's lawmakers approved the key austerity bill, paving the way for the country to get its next vital bailout loans that will prevent it from defaulting next month.
The unpopular five-year package of spending cuts and tax hikes, worth €28-billion ($40-billion), was backed by a majority of the 300-member parliament Wednesday, including Socialist deputy Alexandros Athanassiadis, who had previously vowed to vote against it.
The European Union and International Monetary Fund have demanded the austerity measures pass before they approve the release of a €12-billion loan instalment from last year's rescue package.
Without those funds, Greece would be facing a default by the middle of July.