Canadian dollar notches 4-month high as Wall Street rallies

By Fergal Smith

TORONTO (Reuters) - The Canadian dollar strengthened to a four-month high against its U.S. counterpart on Tuesday as oil prices climbed and U.S. inflation data bolstered bets for a pause in the Federal Reserve's interest rate hiking campaign.

The S&P 500 and Nasdaq added to recent gains after data showed consumer prices rose modestly in May, boosting hopes that the Fed could skip raising interest rates at the end of its policy meeting on Wednesday.

"The firmer risk backdrop has lent further support to CAD as the S&P 500 Index surpasses its highs from last August," said George Davis, chief technical strategist at RBC Capital Markets.

"This, along with a rebound in WTI crude oil prices and a lower print for today’s U.S. CPI data have undermined the USD and benefited CAD in the process."

The price of oil, one of Canada's major exports, rallied 3.8% to $69.69 a barrel, while the Canadian dollar was trading 0.5% higher at 1.33 to the greenback, or 75.19 U.S. cents. It touched its strongest intraday level since Feb. 14 at 1.3287.

The four-month high for the currency comes after the Bank of Canada last week raised its benchmark interest rate for the first time since January, tightening by 25 basis points to 4.75%. The central bank will raise interest rates again in July, according to economists polled by Reuters.

Canadian government bond yields rose across the curve as U.S. Treasury yields moved higher. The 10-year was up 10.4 basis points at 3.452%, approaching the top of its range since March.

(Reporting by Fergal Smith; Editing by Andrea Ricci)