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Canadian dollar rallies to highest since June 2015

Canada’s dollar has strengthened to a fresh two-year high against the greenback today, highlighting disparity between tighter monetary policy cycle in Canada and political jitters in the neighbouring US.

The exchange rate hit $1.25 against the dollar on Monday – the Canadian currency’s best level since June 2015. It has now gained for five consecutive trading sessions and is up 3.5 per cent since the Canadian central bank raised interest for the first time in seven years earlier this month.

The upward lurch also comes as the US dollar has been hit by the latest round of political intrigue from Donald Trump’s White House. The dollar index, which measures the greenback against a basket of its trading peers, has lost nearly 10 per cent this year and it back to its pre-Trump election levels at just under 94.

Having kicked off a tightening cycle this month, economists at JPMorgan expect the Canadian central bank to stick the course with a series of 25 basis points hikes to its benchmark interest rate in the coming quarters.

“We suspect the Bank would tolerate further weak inflation data for at least a few more months, but we await further communication to clarify the relative weights it will place on inflation and the output gap after that”, said Sally Auld at the US investment bank.

Analysts at MUFG added: “If the economy progresses as expected it leaves plenty of scope for further rate hikes in the coming years which should support a stronger [currency]“.

Chart: Bloomberg