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TORONTO — The Canadian dollar strengthened to an 11-day high against the greenback on Friday as oil prices rose and hotter-than-expected domestic inflation data raised the chances of a further Bank of Canada interest rate hike over the coming months.

The annual inflation rate rose to 2.2 per cent, a three-year high, from 1.7 per cent in January, Statistics Canada said. Economists had forecast a rate of 2.0 per cent.

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I think it will reinforce the view that the bank will keep slowly grinding rates higher

The Bank of Canada’s three measures of core inflation also all strengthened. “I think it will reinforce the view that the bank will keep slowly grinding rates higher,” said Doug Porter, chief economist at BMO Capital Markets.

The central bank has hiked rates three times since July even as it worried about a more uncertain outlook for trade. Chances of a hike in May rose to 82 per cent from 74 per cent before the data, the overnight index swaps market indicated. Still, separate data showing a weaker-than-expected 0.3 per cent rise in January retail sales added to the picture of a domestic economy that has lost some momentum in recent months.