March 1, 2011 / 1:56 PM / in 7 years

Loonie hits three-year high ahead of BoC

TORONTO (Reuters) - The Canadian dollar rose to a three-year high against its U.S. counterpart, ahead the Bank of Canada’s interest rate decision on Tuesday and also as the greenback came under pressure.

The Canadian central bank is widely expected to hold its key interest rate at 1.0 percent when it announces its decision at 9 a.m. (1400 GMT). However, according to a poll of 24 participants, more than 60 percent believe rates will rise in the first half of this year with the median forecast pointing to a quarter-point rise on May 31 to 1.25 percent.

On Monday, Statistics Canada reported that fourth-quarter GDP data exceeded forecasts, boosted by a jump in exports and strong consumer spending. The 3.3 percent annualized GDP growth during the quarter bolstered the view the central bank will resume hiking interest rates in the first half of the year.

“Canada’s doing well, oil prices and yesterday’s GDP figure’s making people think the Bank is going to go sooner rather than later,” said John Curran, senior vice president at CanadianForex, but noted that the continued strength of the currency would be a concern.

“It gives them leeway to keep rates pretty much on hold if we get this continued strength.”

The currency hit its highest level since November 2007 as its U.S. counterpart came under broad selling pressure on expectations that interest rates would rise more quickly in other parts of the world, and there also was caution ahead of closely watched testimony from U.S. Federal Reserve Chairman Ben Bernanke.

At 8:31 (1331 GMT), the Canadian dollar stood at C$0.9706 to the U.S. dollar, or $1.0303, up from Monday’s North American finish of C$0.9714, or $1.0294.

The currency rose as high as C$0.9684 to the U.S. dollar, or $1.0326, its highest level since November 2007.

“Realistically, below this 97-cent level, there are few technical spots. This is sort of reminiscent of last time we were down here with oil skyrocketing and the Canadian dollar following along,” said Curran.

“I don’t think it’ll be sustainable over the long period.”

Canadian bond prices were lower across the curve.

The interest rate-sensitive two-year bond was down 3.5 Canadian cents to yield 1.86 percent, while the 10-year bond was off 11 Canadian cents to yield 3.315 percent.

Editing by Chizu Nomiyama

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