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Last week, Bank of Canada Governor Stephen Poloz said he was comforted by recent signs of economic strength. (Mark Blinc/Reuter)
Last week, Bank of Canada Governor Stephen Poloz said he was comforted by recent signs of economic strength. (Mark Blinc/Reuter)

Loonie nears 8-week high as Bank of Canada eyes rate hike Add to ...

The Canadian dollar jumped against its U.S. counterpart on Monday after a senior Bank of Canada official raised the prospect that rising interest rates could come sooner than anticipated, while higher oil prices added further support.

Senior Deputy Governor Carolyn Wilkins said first-quarter growth was “pretty impressive” and that signs economic growth was broadening would lead the central bank to consider whether current low rates would still be required.

“It’s quite the turn from hinting at cuts at the start of the year to decidedly neutral to now pointing to hikes in the forecast horizon,” said Derek Holt, head of capital markets economics at Scotiabank.

The Canadian dollar reacted immediately to the release of Wilkins’ prepared remarks at 1:20 p.m. EDT and continued to strengthen through the afternoon.

At 4 p.m. EDT, the Canadian dollar was trading at $1.3331 to the greenback, or 75.01 U.S. cents, up 1 per cent.

The currency hit $1.3322 during the trading session, its strongest level since April 18.

Canadian government bond prices fell across the yield curve, with the two-year down 19.5 Canadian cents to yield 0.844 per cent, and the 10-year falling 57 Canadian cents to yield 1.488 per cent.

The yield on the 2-year hit its highest since March while the 10-year touched a more than two-week high.

The central bank makes its next rate decision on July 12. While many economists had expected the bank to start raising in 2018, markets had priced in a 56 per cent chance of a hike by the end of 2017 following Wilkins’ speech.

The loonie, as the currency is known colloquially, had touched its strongest since late May on Friday, when data showed job growth accelerated in May at its fastest pace in eight months.

Prices of oil, one of Canada’s major exports, edged up on signs of U.S. inventory declines and news that Saudi Arabia will limit volumes of crude to some Asian buyers in July and deepen cuts to the United States.

The U.S. dollar dipped against a basket of major currencies ahead of Wednesday’s decision by the Federal Reserve on U.S. interest rates, while the euro was lifted by election results in France and Italy.

The foreign exchange options market is showing much less risk of a sharp drop in the Canadian dollar than before last November’s U.S. presidential election, which could spell bad news for speculators who have heavily shorted the currency.

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