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The Canadian dollar CADUSD strengthened to its highest level in more than three weeks against its U.S. counterpart on Wednesday, as domestic inflation data bolstered expectations for another upsized interest rate hike from the Bank of Canada in June.

Canada’s annual inflation rate accelerated faster than expected in March, hitting a 31-year high of 6.7 per cent, amid broad price pressures, official data showed.

“Today’s CPI release confirms that the BoC took the right track when embarking on a 50 basis point hike last week,” said Simon Harvey, FX market analyst for Monex Europe and Monex Canada.

“If May’s data shows the pace of shelter and food inflation continues to be robust, we expect the BoC to go back-to-back with 50 basis point hikes.”

Last week, the Bank of Canada raised its benchmark rate by half a percentage point, its biggest single hike in more than two decades, and opened the door to lifting interest rates above a neutral setting for the first time in 14 years. Its next policy decision is due on June 1.

The central bank’s goal of taming inflation without triggering a recession is challenged by the multiple drivers of price pressures and record-high household debt.

The Canadian dollar was trading 0.8 per cent higher at 1.2512 to the greenback, or 79.92 U.S. cents, after touching its strongest level since April 6 at 1.2502.

The gain for the loonie came as the U.S. dollar lost ground against a basket of major currencies and the price of oil, one of Canada’s major exports, rebounded from the previous session’s sharp losses. U.S. crude prices, which were up 0.8 per cent at $103.35 a barrel.

Canadian bond yields rose across a flatter curve. The 2-year touched its highest since October 2008 at 2.590 per cent before dipping slightly to 2.584 per cent, up 6.4 basis points on the day.

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