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Larry MacDougal

The Canadian dollar climbed by nearly half a cent Wednesday after a stronger-than-expected economic report heightened expectations that interest rates will soon rise.

The dollar strengthened to 98.44 cents (U.S.), its highest level in almost two weeks, from Tuesday's close of 98.09 cents.

The country's gross domestic product rose by a better-than-expected 0.6 per cent in January, the fifth straight month of gains, Statistics Canada said Wednesday. The strength of a range of economic indicators have taken many people, including Bank of Canada officials, by surprise lately.

The Loonie: Investor Education

  • Understanding the Canadian dollar
  • How to play the Canadian dollar
  • Is the Canadian dollar overvalued?
  • Which stocks gain from high dollar?
  • Where is the loonie headed?

The currency will continue to appreciate, UBS said in a report Wednesday. It believes the currency could approach an all-time high against the greenback in the next two years.

"Strong economic data increases the risk that the Bank of Canada might even hike interest rates before the Fed does," the bank said, adding that rising oil prices and central bank currency diversification will also support the loonie.

The Canadian currency has gained 24 per cent against the U.S. dollar in the past year and 21 per cent against the euro.


An Investor's Guide to Understanding the Economy by Gary Rabbior:

  • Part 1: How the money in the economy is managed
  • Part 2: How inflation works
  • Part 3: Avoiding the deflationary spiral
  • Part 4: How much money is too much money?
  • Part 5: How markets and currencies work
  • Part 6: How interest rates affect your investments