* Canadian dollar rises after c.bank hints at rate hike
* Dollar dips as Fed’s 2-day meeting eyed (Updates to U.S. market open, changes opening paragraph, changes dateline, previous PARIS)
By Dion Rabouin
NEW YORK, June 13 (Reuters) - The U.S. dollar fell to a two-month low against the Canadian dollar on Tuesday, just a hair above its lowest level against the loonie since late February, after hawkish comments from Bank of Canada Governor Stephen Poloz.
Poloz said that the central bank’s 2015 interest rate cuts “have largely done their work,” signaling that the BOC could raise interest rates sooner than previously thought.
Bank of Canada Senior Deputy Governor Carolyn Wilkins said late on Monday that first-quarter growth in the North American country had been “pretty impressive,” and that signs economic growth was broadening would lead the central bank to consider whether current low rates would still be required.
While many economists had expected the bank to start raising rates in 2018, markets are now pricing in a 72 percent chance of a hike by the end of 2017 following Wilkins’s speech.
“It’s one of the biggest moves we’ve seen over the past year” in the Canadian dollar, said Mark McCormick, North American head of FX strategy at TD Securities in Toronto. “That’s dragging some of the dollar bloc currencies with it.”
The move higher for the loonie could have implications for the Australian and New Zealand dollars, McCormick said, as the Reserve Bank of New Zealand and Bank of Australia hold meetings over the next few weeks.
Speculators have more than 120,000 short contracts on the Canadian dollar, with net short bets remaining near a record high, according to data from the Commodity Futures Trading Commission and Reuters.
“The market had been overlooking the strengthening economic data from Canada, and obviously now that we’re starting to see some change in communication from the Bank of Canada to acknowledge that ... the market won’t be able to look through that,” said MUFG currency economist Lee Hardman, in London.
“The shift to a more hawkish stance will offer the potential for the Canadian dollar to strengthen further from here.”
The loonie’s U.S. counterpart, meanwhile, inched down against a basket of currencies ahead of the start of the Fed’s June policy meeting, as the euro inched higher, staying just above $1.12.
With the Fed widely expected to raise interest rates when it concludes its meeting on Wednesday, investors’ focus will be on any fresh hints on the pace of hikes in the months to come, and its assessment of the economy and outlook on inflation.
Investors will also be watching for any fresh details on the central bank’s plans for trimming its balance sheet. (Reporting by Dion Rabouin; Editing by Frances Kerry)