The Canadian dollar hit its strongest level since September against its US counterpart on Tuesday as Bank of Canada Governor Stephen Poloz added more support to the view the central bank will raise interest rates as early as next week.
Inflation in Canada should be well into an uptrend by the first half of 2018, Poloz told German newspaper Handelsblatt, adding that policy normalization must begin before price growth hits its target. At 4 p.m. ET (2000 GMT), the Canadian dollar was trading at C$1.2930 to the greenback, or 77.34 US cents, up 0.6 percent. At one point the loonie touched C$1.2912, its strongest since September 9. The discount at which Canadian two-year bonds trade versus US Treasuries have also narrowed sharply since late June. The two-year price fell 6.5 Canadian cents to yield 1.137 percent and the 10-year declined 60 Canadian cents to yield 1.832 percent on Tuesday. The two-year yield is at its highest since October 2014. Chances of a rate hike next week are nearly 65 percent, data from the overnight index swaps market shows.
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