The Canadian dollar erased its yesterday’s losses versus the U.S. currency and extended its rally against the euro as the inflation were near the forecasted value, causing the speculation that the central bank would increase the interest rates.

The annual inflation dropped to 1.4 percent last month from 1.8 percent in April, the core rate (excluding most volatile items) fell from 1.9 percent to 1.8 percent. The results were pretty near the forecasted values, 1.3 percent and 1.7 percent respectively. Some economists were concerned that the consumer price index would fall, discouraging the interest rates increase, but the core CPI remained stable at 0.3 percent as was predicted.

The favorable data fueled expectations for the Bank of Canada to increase the rates in July and supported the loonie. The Canadian currency is also drawing strength from the demand of the investors, who are attracted to Canada by the strong balance sheet, and from the global economic growth, which is supporting the demand for the nation’s raw materials.

USD/CAD traded near 1.0204 today as of 16:07 GMT after opening at 1.0241. EUR/CAD fell to 1.2560 from its opening rate of 1.2610.

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