TORONTO: The Canadian dollar strengthened to a one-month high against its broadly weaker US counterpart on Monday, as oil prices climbed and some investors bet the Bank of Canada will stick this week to its plan to raise interest rates to a neutral range.
The Bank of Canada, which has hiked five times since July 2017 to leave its benchmark interest rate at 1.75 percent, is widely expected to refrain from further tightening on Wednesday following recent volatility in stock markets and the price of oil, one of Canada's major exports.
Still, the central bank said as recently as last month that it will need to raise rates further to a neutral range of between 2.50 percent and 3.50 percent to achieve its inflation target.
"I think there are people thinking that the bank will stick to its guns a little bit, at least in terms of eventually getting back to neutral, and if so that should be supportive of the currency," said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets.
Domestic data showed a surprise pick-up in the pace of purchasing activity in December. The Ivey Purchasing Managers Index rose to 59.7 from 57.2 in November, surpassing analysts' expectations for 56.8.
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