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Market News Canadian dollar climbs on expectations BoC will hold off on rate cuts

The Canadian dollar rose against the greenback on Monday, adding to gains from last week when domestic data showing inflation at a seven-month high supported the view that the Bank of Canada would hold off from interest rates cuts over the coming months.

In contrast, expectations have been building that the United States and the euro zone may ease monetary policy as early as July.

With the exception of Canada and Norway “we have seen a big dovish shift in policy expectations across the board,” said Alvise Marino, a foreign exchange strategist at Credit Suisse in New York. “If the data hold up in Canada, there is space for the Canadian dollar to outperform against other G10 currencies.”

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Last month, the Bank of Canada said there was evidence that a slowdown in the domestic economy was temporary. Money markets see about a 50 per cent chance of an interest-rate cut by December.

Canada’s annual inflation rate rose to 2.4 per cent in May, which was the first time since October 2018 that the rate had exceeded the central bank’s 2.0 per cent target.

Canada’s wholesale trade report for April is due on Tuesday and April gross domestic product data is due on Friday.

At 4:15 p.m., the Canadian dollar was trading 0.3 per cent higher at 1.3182 to the greenback, or 75.86 U.S. cents. The currency, which rose 1.4 per cent last week, traded in a range of 1.3178 to 1.3220.

The loonie has rallied about 3.5 per cent since the start of 2019, which is the best performance among G10 currencies.

The U.S. dollar fell on Monday against its rivals after sustaining its biggest weekly drop in four months last week, while the price of oil, one of Canada’s major exports, was boosted by market concerns about the possibility of a conflict between the United States and Iran.

U.S. crude oil futures settled 0.8 per cent higher at $57.90 a barrel.

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Canadian government bond prices were higher across the yield curve in sympathy with U.S. Treasuries. The two-year rose 4.5 cents to yield 1.409 per cent and the 10-year was up 24 cents to yield 1.459 per cent.

The gap between Canada’s two-year yield and its U.S. equivalent narrowed by 1.8 basis points to a spread of 32.8 basis points in favour of the U.S. bond. Last Thursday, the spread touched 30.8 basis points, which was the smallest gap since February 2018.

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