Canadian dollar holds near three-month high as inflation data boosts rate-hike bets

TORONTO (Reuters) - The Canadian dollar was little changed against the greenback on Friday, holding near its highest in more than three months as data showing a pickup in underlying inflation boosted bets for a Bank of Canada interest rate hike next month.

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

Canada’s annual inflation rate dipped to 2.8 percent in August from 3.0 percent in July, the seventh consecutive month it has exceeded the Bank of Canada’s 2.0 percent target, Statistics Canada data indicated. All of the central bank’s core inflation measures were 2.0 percent or higher, for the first time since February 2012.

Separate data showed that Canadian retail trade rose 0.3 percent in July from June.

The Bank of Canada has raised interest rates four times since July 2017. Chances of another hike in October rose to nearly 90 percent from 85 percent before the data, the overnight index swaps market indicated. BOCWATCH

At 9:14 a.m. EDT (1314 GMT), the Canadian dollar CAD=D4 was trading nearly unchanged at 1.2909 to the greenback, or 77.47 U.S. cents.

The currency, which touched its strongest in more than three months on Thursday at 1.2885, traded in a range of 1.2886 to 1.2927.

For the week, the loonie is on track to rise 1 percent. It has been boosted by optimism that a deal would be reached to renew the North American Free Trade Agreement.

Still, Canada and the United States showed scant signs on Thursday of reaching agreement to revamp NAFTA, and Canadian officials made clear Washington needed to withdraw a threat of possible autos tariffs, sources said.

Canada sends about 75 percent of its exports to the United States, so its economy could be hurt if a deal is not reached.

The U.S. dollar .DXY rose against most of its rivals but was still on track for its biggest weekly drop in seven months as stronger equity markets and rising bond yields fueled a rush to buy riskier assets.

The price of oil, one of Canada's major exports, climbed ahead of a meeting of OPEC and other large crude exporters that will focus on production increases as U.S. sanctions restrict Iranian exports. U.S. crude CLc1 prices were up 0.9 percent at$70.93 a barrel.

Canadian government bond prices were lower across the yield curve, with the 10-year CA10YT=RR falling 16 Canadian cents to yield 2.441 percent. On Thursday, the 10-year yield touched its highest in nearly four months at 2.444 percent.

Reporting by Fergal Smith; Editing by Bernadette Baum