Canada’s dollar advanced to the highest since May 2 against the greenback as optimism that policy makers in Europe and the U.S. will address debt conflicts drove demand for higher-yielding assets. The loonie, as the currency is also known, approached a three and a half-year high, after Bank of Canada Governor Mark Carney yesterday adjusted wording in a statement to suggest interest rate increases will happen as early as September. Crude oil rose for a second day. “We still like the Canadian dollar,” said Chris Walker, a currency strategist at UBS AG, by phone from London. “People are looking for reasons to buy it, even at these levels. Generally today, it’s been quite a good risk environment.” The Canadian currency gained 0.2 percent to 94.86 cents per U.S. dollar at 9:56 a.m. in Toronto, compared with 95.01 cents yesterday. It touched 94.57, close to the 94.46 it reached on April 29, the strongest since November 2007. One Canadian dollar buys $1.0541. Inflation will average 2.8 percent between July and September and slow to 1.9 percent in the second quarter of next year, the Ottawa-based central bank said in its Monetary Policy report today. The so-called core rate, which excludes eight volatile items, will peak at 2.1 percent in the first quarter of 2012. Investors raised bets yesterday that Carney will raise interest rates after the word “eventually” was cut from a phrase about the timing of the next increase. The policy rate was kept at 1 percent, where it’s been since September, as policy makers weigh the quickest inflation since 2003 against the risks from slow U.S. growth and Europe’s debt crisis. Carney will hold a press conference at 11:15 a.m. Toronto time. Waiting Mode The currency trimmed its gain as traders awaited the monetary police report and as the greenback recovered, said Shane Enright at Canadian Imperial Bank of Commerce. “Part of it is the fact that the dollar’s had a modest recovery in what I’m going to call very lackluster trading,” Enright, executive director at CIBC’s World Markets unit, said by phone from Toronto. “The other thing is you’ve got the monetary policy report at 10:30.” Spanish and Italian bond yields fell a second day before a summit tomorrow of European officials. The Dollar Index dropped after President Barack Obama praised a bipartisan Senate proposal yesterday for a $3.7 trillion debt-cutting plan as U.S. lawmakers intensify efforts for a compromise on government spending less than two weeks before a threatened default. Headline Risk “Even if we do have a few headlines which appease investors and calm the bonds markets in the short term, then we should see a bit of a risk rally,” said UBS’s Walker. Canadian wholesale sales increased 1.9 percent to C$47.6 billion ($50 billion) in May, the fastest rate in 18 months as sales of agricultural supplies and farm equipment surged, Statistics Canada said. Economists predicted sales would rise 0.1 percent, the median of 15 responses compiled by Bloomberg News. “It was a big beat on wholesale sales in May and it should add to the optimism,” Jack Spitz, managing director of foreign exchange at National Bank of Canada, said by phone from Toronto. “Canada’s dollar is further supported by the global risk backdrop, which is pointing decidedly higher.” Crude oil futures increased as much as 1.6 percent to $99.02 a barrel in New York. To contact the reporter on this story: Chris Fournier in Halifax, Nova Scotia at cfournier3@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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