C$ notches one-week high as investors bet on faster vaccine rollout

U.S. and Canada Dollar notes are seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Wednesday, as positive news on a COVID-19 vaccine boosted oil prices and domestic data showing higher inflation reduced prospects of additional policy easing from the Bank of Canada.

The Canadian dollar was trading 0.5% higher at 1.3041 to the greenback, or 76.68 U.S. cents. The currency touched its strongest intraday level since last Wednesday at 1.3034.

Canada’s annual inflation rate climbed to 0.7% in October from 0.5% in September, mainly on higher food prices, Statistics Canada said. The average of three underlying rates that are closely watched by the Bank of Canada was at 1.8%, up from 1.7%, moving closer to the central bank’s 2% target.

Since March, the Bank of Canada has cut interest rates to near zero and launched a large scale bond-buying program, quantitative easing, for the first time.

“This morning’s inflation print modestly weakened the case for monetary stimulus from the Bank of Canada, but rising oil prices and an overall improvement in risk sentiment are the key factors helping nudge the loonie closer to 1.30,” said Karl Schamotta, chief market strategist at Cambridge Global Payments.

The price of oil, one of Canada’s major exports, rose on hopes OPEC and its allies will delay a planned increase in oil output and after Pfizer said its COVID-19 vaccine was more effective than previously reported. U.S. crude oil futures settled 0.9% higher at $41.82 a barrel.

Market participants are betting that COVID-19 vaccines will be rolled out faster than was previously expected, which could help unleash a surge in consumer spending and business investment, Schamotta said.

Canadian government bond yields were mixed across a flatter curve, with the 10-year down 2.2 basis points at 0.716%.

Reporting by Fergal Smith; Editing by Nick Zieminski and Sandra Maler