Canadian Dollar at Highest in 3 Years

The Canadian dollar rose Tuesday to its highest level in three years after the nation’s central bank boosted its benchmark lending rate, putting it 2 percentage points above the comparable U.S. rate.

Higher interest rates have lured investors to Canadian bonds, helping fuel an 8.3% rally in the currency against the U.S. dollar this year.

The stronger Canadian dollar means the country is becoming a more expensive destination for U.S. tourists -- and for Hollywood, which has favored Canada as a filming location.

The Canadian dollar rose to 69.1 U.S. cents in New York, from 68.8 cents Monday, after the Bank of Canada increased its target for overnight loans between banks by a quarter percentage point, to 3.25%. It was the fifth increase in a year.

The U.S. Federal Reserve’s benchmark short-term rate, by contrast, is 1.25%.

The Bank of Canada is the only central bank in the Group of Seven industrialized nations to boost rates this year. There was a quarter-point rise in March.

The central bank has been responding to surprisingly strong economic growth in Canada that has pushed the nation’s annualized inflation rate to an 11-year high of more than 4%.

“I think this shows how concerned the bank is about the inflation outlook, that they’re willing to basically tighten at every opportunity” despite the precarious global economy, said Doug Porter, economist at BMO Nesbitt Burns.

The Standard & Poor’s/TSX index of the Toronto Stock Exchange added 25.75 points, or 0.4%, to 6,488.18 on Tuesday. It is down 1.9% this year. The U.S. S&P; 500 is up 1.3% this year.