TORONTO: The Canadian dollar gained against its US counterpart on Thursday as a spate of encouraging economic data boosted North American equities and helped stoke bets on a sooner-than-expected interest rate hike in Canada.
The commodity-linked currency was also buoyed by a recovery in the price of oil, though traders also pointed to a breakdown in historical links to other assets making it difficult to predict where the loonie, as Canada's currency is colloquially known, would move next.
"It doesn't seem as though there is any correlation at all with anything out there," said David Bradley, a director of foreign exchange trading at Scotiabank.
He said investors were preoccupied with whether and when the Federal Reserve will scale back its monetary stimulus. The US central bank's policy-setting committee meets next week.
The greenback fell sharply against the Japanese yen as recent signs from each country's central bank that easing could slow led some investors to reverse heavy bets on a further fall in the yen.
The Canadian dollar strengthened almost half a percent, ending the session trading at C$1.0166 to the greenback, or 98.37 US cents, compared with C$1.0212, or 97.92 US cents, at Wednesday's North American close.
The Canadian government on Thursday reported that industrial capacity usage, particularly in mining, oil and gas extraction, rebounded in the first quarter from a weak second half of 2012, and housing prices rose more than expected.
These reports mirrored a trend of improving Canadian economic data, which included a blockbuster gain in employment in May and stronger housing data.
"People are starting to factor in rate increases in Canada again, which has helped, but we're not really pushing any new ground at the moment," said Shaun Osborne, chief currency strategist at TD Securities.
Overnight index swaps, which trade based on expectations for the central bank's key policy rate, have risen recently as solid economic data has led some investors to bet on a rate hike sooner than previously expected.
The two-year bond was up 8 Canadian cents to yield 1.134 percent, while the benchmark 10-year bond rose 55 Canadian cents to yield 2.148 percent.
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