TORONTO, Oct 20 (Reuters) - The Canadian dollar strengthened to a four-week high against its US counterpart on Tuesday, boosted by a narrower gap between Canadian and US interest rates and after Alberta voted by a large majority to remain part of Canada
The loonie was trading 0.5% higher at 1.4045 per US dollar, or 71.20 U.S. cents, after touching its strongest intraday level since September 22 at 1.4033. Among Group of 10 currencies, only sterling posted a bigger gain.
"The Canadian discount to the US has fallen sharply in the last few days which has helped fuel this correction in the Canadian dollar," said Marc Chandler, chief market strategist at Bannockburn Capital Markets.
The gap between Canada's 2-year yield and the US equivalent has narrowed to 146 basis points from about 160 basis points earlier this month as investors raised bets on a Bank of Canada interest rate hike next week.
Swap market data indicates an 80% chance the BoC raises its benchmark interest rate by 25 basis points to 2.50% on October 28. It follows hawkish comments by Governor Tiff Macklem on Saturday and evidence on Monday of rising long-term inflation expectations.
The remain side won 76% of tallied votes in Alberta's first-ever referendum on separation, handing Prime Minister Mark Carney a much-needed win as he attempts to unify the country amid a trade war with the US.
"The Alberta vote could not have gone better from a market perspective," Chandler said. "This is the least disruptive alternative because it preserves the status quo."
The price of oil, one of Canada's major exports, pulled back from its highest level since April as traders priced in Houthi attacks on Saudi infrastructure and reports of vessel attacks in the Gulf. U.S. crude oil futures were trading 0.9% lower at $102.75 a barrel.
Canadian government bond yields moved lower across the curve, with the 10-year down 6.8 basis points at 3.894%.
Reporting by Fergal Smith; Editing by Alistair Bell
