C$ reaches two-month high as greenback slips, oil climbs

TORONTO (Reuters) - The Canadian dollar strengthened to a two-month high against its U.S. counterpart on Wednesday, as the greenback broadly fell and oil prices rose.

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch

Data before the Christmas break showing an acceleration in domestic inflation has also helped underpin the loonie.

At 4 p.m. ET (2100 GMT), the Canadian dollar CAD=D4 was trading at C$1.2572 to the greenback, or 79.54 U.S. cents, up 0.7 percent.

The currency, which had been trading in a range roughly between 1.26 and 1.29 over the past two months, touched its strongest level since Oct. 20 at C$1.2567.

The U.S. dollar fell to a one-month low against a basket of major currencies.

Investors have been weighing prospects for global central banks to tighten monetary conditions, lessening the divergence between the U.S. Federal Reserve’s policy and the rest of the world.

The Bank of Canada raised interest rates in July, and then again in September, for the first time in seven years. Money markets expect three further hikes in 2018, which is more than is expected from the Fed.

“Last week you had some positive reports on CPI and retail sales that raised the odds of a slightly earlier move from the Bank of Canada,” said Josh Nye, economist at Royal Bank of Canada.

The price of oil, one of Canada’s major exports, remained near 2-1/2-year highs after data showed strong demand for crude imports in China and on increased U.S. refining activity that drew more crude from inventories.

U.S. crude futures settled 0.3 percent higher at $59.84 a barrel.

Canadian government bond prices were lower across the yield curve in sympathy with U.S. Treasuries. The two-year fell 5.5 Canadian cents to yield 1.693 percent and the 10-year declined 42 Canadian cents to yield 2.031 percent.

The gap between Canada’s 10-year yield and its U.S. counterpart narrowed by 3.5 basis points to a spread of -39.9 basis points, its narrowest since Nov. 16.

Reporting by Fergal Smith; Editing by Frances Kerry and Sandra Maler