There are signs of economic growth, BoC governor says

PARIS, June 13 (Reuters) - Canada's dollar hit a two-month high on Tuesday after the Canadian central bank raised the prospect of an interest rate hike as soon as this year, while the USA dollar inched down as traders eyed the start of a two-day Federal Reserve meeting.

With the adjustment to lower oil prices largely behind us, there are encouraging signs that growth is broadening across regions and sectors, Senior Deputy Governor Carolyn A. Wilkins told the Associates of the Asper School of Business in a speech today.

"As growth continues and, ideally, broadens further, Governing Council will be assessing whether all of the considerable monetary policy stimulus presently in place is still required", Wilkins said in the text of a speech she's giving Monday.

However, he doesn't think the Bank of Canada is ready to start cranking up interest rates just yet. The speech also comes days after a blockbuster May jobs report for Canada that indicated the country recorded its fastest pace of annual job growth in over four years. Chances of a Canadian interest rate hike increased significantly after Wilkins' speech.

He added that TD is predicting the next rate hike in early 2018. In his view, the central bank "really likes what they are seeing in the economy, and they won't let themselves be paralyzed by downside risk".

The Canadian dollar touched its strongest in about two months at C$1.3287 per U.S. dollar at one point, extending its gains after climbing more than 1 per cent on Monday. The Canadian dollar now trades around 74.90 USA cents from about 74.27 US cents right before the release of the speech, according to CQG.

For the 24 hours to 23:00 GMT, the United States dollars declined 0.94% against the CAD and closed at 1.3319.

Until recent weeks, the Bank of Canada had urged caution amid a string of positive economic indicators. It was pretty impressive, with growth at 3.7 per cent.

"She delivered a much more hawkish signal than we've seen from the central bank in some time", said Sue Trinh, head of Asia FX strategy for Royal Bank of Canada's Hong Kong branch.

After Wilkins' comments on monetary stimulus were made public via a Bloomberg report, the Canadian currency began to rally vigorously against the US dollar.

"A significant haze of uncertainty continues to hang over the economy, and although it is likely that inflation is at or near a nadir, this has yet to be borne out in the data", DePratto said. Policy makers need to keep their eye on the future evolution of growth, not only current economic conditions, in implementing policy, Wilkins said, giving as an analogy a vehicle slowly braking before a traffic light.

-David George-Cosh in Toronto contributed to this article.

  • Zachary Reyes