The Canadian dollar rose to a two-month high against its U.S. counterpart on Tuesday, while comments from Bank of Canada Governor Stephen Poloz argued that the central bank could raise interest rates sooner than expected.
Interest rates cut by the Bank of Canada in 2015 have largely done their job as the economy appears to be accelerating, the central bank official said.
“Poloz announced today that rates will not always be frozen,” said Nick Exarhos, an economist at CIBC Capital Markets.
The odds of an interest rate hike this year rose to 72 percent from just 22 percent before Friday’s stronger-than-expected jobs data, index swap market data overnight.
Most of the motion came after comments made Monday by Bank of Canada Senior Deputy Governor Carolyn Wilkins.
Bearish bets on the loonie stood near a record high as of June 6, with CFTC data and Reuters calculations showing on Friday.
Strengthening the currency could put pressure on multiple-constrained speculators to cover short positions and accelerate any higher movement in the currency.
At 0932 ET, the Canadian dollar was trading at $1.3228 for the greenback, or 75.60 US cents, up 0.7%.
The lowest level of the currency was $1.3325, while it was touching the highest since April 13 at $1.3226.
Gains for the loonie came as oil prices, one of Canada’s main exports, fell after OPEC recorded an increase in production for May.
U.S. crude oil prices fell 0.22% to $45.98 per barrel.
The U.S. dollar fell as traders watched the start of a two-day U.S. Federal Reserve meeting.
The euro dollar against the Canadian dollar appears to be stable, but the pressure is strong for the Canadian dollar to rise.
Government of Canada bond yields were much lower on the yield curve, with canadian two cents falling 12.5 cents to 0.911% and Canada’s 10-year yield to 1.549 percent.
The 2-year yield touched its highest daily short since January 2015 at 0.914 percent.