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TORONTO (Reuters) - The Canadian dollar closed just below 99 U.S. cents on Wednesday, its highest level in almost 20 months, as it moved tantalizingly close to being on a one-for-one footing with the U.S. dollar.
The currency got support from firm commodity prices and a renewed pledge by the U.S. Federal Reserve to keep interest rates low for an extended period, as well as a bigger than expected jump in Canadian wholesale trade data. During the day it rose as high as C$1.0071 to the U.S. dollar, or 99.30 U.S. cents, its highest level since July 2008.
It closed at C$1.0103 to the U.S. dollar, or 98.98 U.S. cents, up from Tuesday's close of C$1.0140 to the U.S. dollar, or 98.62 U.S. cents.
"The Canadian dollar continues to show strength, quite an astonishing push...There is undeniably a great deal of momentum," said Eric Lascelles, chief economics and rates strategist
"Parity is very much in the market's sights."
The Canadian dollar also benefited from a softer tone to the U.S. dollar, Lascelles said. The greenback fell against higher-yielding currencies as risk assets rallied, including stock markets and oil, which rose above $82 a barrel.
The Canadian dollar has closed higher in 13 of the last 14 sessions, gaining every day but one during this month so far.
"The risk is that there's going to be a bit of a correction, but there's no real incentive because the overall trend is still higher," said Michael O'Neill, managing director at Knightsbridge Foreign Exchange, a commercial foreign exchange dealing firm.
Canadian bond prices deepened losses across the curve on Wednesday as domestic data provided more evidence of Canada's strengthening economic recovery, keeping interest rate hikes on investors' radar.
Adding to a host of strong economic reports recently, Canadian wholesale trade jumped by a much greater than expected 3.0 percent in January from December.
"What continues to motivate the bond market remains excited expectations for the Bank of Canada (rate increase) and strong economic figures," Lascelles said.
"It's hard to argue when you do indeed see such legitimate economic strength time and time again."
He said he expects the Bank of Canada to raise interest rates in July, the first monetary policy setting date after the central bank's conditional pledge on rates expires at the end of June.
The rate pledge is conditional on inflation remaining in check, which could make this Friday's consumer price index for February critical. Investors will mainly be checking the report to see if core inflation remains high or subsides, after unexpectedly reaching the Bank of Canada's 2 percent target in January.
The two-year government bond slipped 9 Canadian cents to C$99.83 to yield 1.588 percent, while the 10-year bond dropped 23 Canadian cents to C$102.17 to yield 3.472 percent.
Canadian bonds mostly underperformed against their U.S. counterparts across the curve. The difference between 10-year yields narrowed 4.6 basis points to 16.4 basis points.
Editing by Peter Galloway