Stephen Poloz's comments help send loonie higher

The Canadian dollar continued gaining ground against the U.S. dollar on Tuesday on comments by the head of the Bank of Canada that the economy is revving up.

Loonie up more 1.3 cents against U.S. dollar since Monday

Stephen Poloz, governor of the Bank of Canada, suggested Tuesday that interest rate cuts made two years 'have done their job.' (Fred Chartrand/Canadian Press)

The Canadian dollar continued gaining ground against the U.S. dollar Tuesday on comments by the head of the Bank of Canada that the economy is revving up.

The loonie gained 0.50 of a cent to hit 75.55 cents US.

In an interview Tuesday in Winnipeg with Marcy Markusa, the host of CBC Manitoba's Information Radio, Bank of Canada governor Stephen Poloz said the economy is picking up.

"It isn't time to throw a party, but it does suggest that the interest rate cuts we did two years ago have done their job, and that's important to us," Poloz said.

The bank cut rates back in 2015 as the economy grappled with the effects of tumbling oil prices. 

"Everyone knows, I think, that interest rates have been extraordinarily low to offset some of the shocks that have been hitting our economy, beginning with the global financial crisis but then again the oil collapse we saw 2½ years ago," Poloz said.

"What it looks like now is the economy is gathering momentum," he said.

The loonie has gained about 1.3 cents over the past two days, buoyed by comments by Bank of Canada officials, including Poloz and senior deputy governor Carolyn Wilkins, about the state of the economy.

"It's one of of the biggest moves we've seen over the past year," in the loonie, Mark McCormick, North American head of foreign exchange strategy at TD Securities, told Reuters. 

Markets are taking the bank's positive tone to mean that interest rate hikes could come sooner than had been expected, which was early 2018.

The Bank of Canada is slated to announce its next decision on interest rates on July 12.

CIBC Capital Markets said the Canadian economy has been an "outperformer," but believes there is still reason to believe that the loonie will remain soft in the near term.

"A weak currency is a necessary component to see exports rise, so expect governor Poloz to remain patient in lagging the Fed on rate hikes," CIBC said in a commentary issued Tuesday. " That said, given the recent change in tone, it appears he can only wait so long. As a result, the loonie should begin looking a little stronger around the turn of the year."

The U.S. Federal Reserve is expected to announce an interest rate hike on Wednesday, with investors looking for signs of when they can expect other future hikes.

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