* Hits highest levels since May 3
* Monetary Policy Report 10:30, press conference follows
TORONTO, July 20 (Reuters) - The Canadian dollar rallied to a 2-1/2 month high against the U.S. dollar on Wednesday morning after the Bank of Canada on Tuesday sounded more hawkish than expected, prompting some investors to price in rate hikes sooner rather than later.
The currency also benefited from better risk appetite globally, as strong company earnings results and hopes for a political settlement in the U.S. debt ceiling row boosted overseas equities and oil prices while the euro rose on hopes for a scheme to address the Greek debt crisis. [MKTS/GLOB]
Later in the morning, market players will be paying close attention to the central bank’s Monetary Policy Report at 10:30 a.m. (1430 GMT) followed by a press conference at 11:15 a.m. for more insight into its thinking.
“The BoC chose an awkward juncture at which to abruptly go hawkish, and will have a further opportunity to explain its bias shift in this morning’s Monetary Policy Report and the ensuing press conference,” said Scotia Capital economists Derek Holt and Karen Cordes Woods in an early note to clients.
“The BoC could have easily bought more time in the face of key global risks but may have felt uncomfortable doing so given that the next best chance to more fully explain any shift in thinking wouldn’t have come until the October MPR.”
The central bank held its overnight rate at 1.0 percent on Tuesday, but said core inflation will reach the bank’s 2 percent target earlier than expected as it sees domestic economic growth accelerating in the second half of 2011, in contrast to rising risks abroad. [nN1E76I045]
At 7:58 a.m. (1158 GMT), the currency CAD=D4 was at C$0.9463 to the U.S. dollar, or $1.0569, up from Tuesday’s North American session close at C$0.9508 to the U.S. dollar, or $1.0517. Earlier, it rose as high as C$0.9457, or $1.0574, its best level since May 3.
Inflation and retail sales data on Friday will provide the market with further direction.
Reporting by Claire Sibonney, Editing by Chizu Nomiyama