Canadian dollar hits 1-month high ahead of inflation data

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar strengthened to a one-month high against its U.S. counterpart on Monday as investors grew more optimistic about the global economy and ahead of inflation data that could sway the Bank of Canada's interest rate outlook.

The loonie was trading 0.3% higher at 1.3488 to the greenback, or 74.14 U.S. cents, after touching its strongest level since Aug. 15, at 1.3472.

"The Canadian dollar is reflecting global growth optimism at the moment," said Adam Button, chief currency analyst at ForexLive. "China last week stepped up with more stimulus, and American economic data continues to impress."

Canada is a major exporter of commodities, including oil, so the loonie tends to be sensitive to global economic prospects. U.S. crude oil futures settled 0.8% higher at $91.48 a barrel, its highest in 10 months.

Canadian producer prices grew by 1.3% in August from July on higher prices for energy and petroleum products, as well as chemicals and chemical products, Statistics Canada said.

The more influential consumer price index report, due for release on Tuesday, is expected to show inflation accelerating to an annual rate of 3.8% in August from 3.3% in July.

Earlier this month, the Canadian central bank held its key interest rate at 5%, but said it could raise borrowing costs again should inflationary pressures persist.

"Canadians would love the central bank to declare that rate hikes are over. That's not coming any time soon given the stickiness of inflation and the rise in energy prices," Button said.

Canadian government bond yields moved higher across a more deeply inverted curve. The 2-year rose 5 basis points to 4.782%, while the 10-year was up 1.3 basis points at 3.756%.

(Reporting by Fergal Smith; Editing by Leslie Adler)