/www.fxserver.com/ TORONTO — The loonie soared more than half a cent Monday and closed at its highest level in 2? years as the prospects of rising interest rates in Canada prompted heavy buying of the currency.
The Canadian dollar jumped 0.58 to 67.03 cents US, its highest close on North American currency markets since August 2000. The currency has been gaining steadily for months, and got a boost from the federal budget last Tuesday.
Observers say higher government spending plans will spur inflation and the Bank of Canada will respond with higher interest rates of between one-quarter and one-half of a percentage point as early as next month.
Higher interest rates make Canadian dollar-denominated investments more attractive to Germans, Japanese and other foreign investors and increase demand for the loonie on currency markets.
As well, Canada has been outperforming other Group of Seven economies, producing more robust growth, in part because of low interest rates and solid job expansion.
In addition to gaining against the U.S. greenback, the Canadian dollar rose against the British pound, Japanese yen and the European euro on Monday.
"The hottest thing around right now is the Canadian dollar," said Scott Kinnear, an economist with MMS in Toronto.
"The currency on a spot basis broke through $1.50 Cdn (to the U.S. dollar) overnight, which is a pretty important psychological threshold for traders ... so people have become a little more bullish from a technical point of view for the currency," said Andrew Pyle, senior economist at Scotiabank.