By Fergal Smith
TORONTO (Reuters) - The Canadian dollar strengthened to a seven-week high against its U.S. counterpart on Thursday as U.S. inflation pressures cooled and Bank of Canada Governor Tiff Macklem said the economy could avoid a major rise in the unemployment rate.
The loonie was trading 1.2% higher at 1.3370 to the greenback, or 74.79 U.S. cents, after touching its strongest level since Sept. 20 at 1.3334.
"The U.S. dollar fell sharply in a broad-based way and the loonie has benefited from that," said Rahim Madhavji, president at KnightsbridgeFX.com.
"There were a lot of people that were long the U.S. dollar and short some of the other currencies ... so a lot of people are closing position."
The greenback fell sharply against a basket of major currencies, bond yields tumbled and Wall Street rallied after U.S. consumer prices rose less than expected last month, data that may allow the Federal Reserve to ease up on aggressively hiking interest rates.
The Bank of Canada has also been tightening at a rapid pace. Money markets see a roughly 70% chance that the central bank would hike its benchmark rate by 25 basis points rather than 50 at its next policy decision on Dec. 7, up from 50% before the U.S. inflation data.
Canada's red-hot labor market can weather an economic slump without seeing a major surge in unemployment, Macklem said.
Higher oil prices added to support for the loonie. U.S. crude oil futures settled 0.8% higher at $86.47 a barrel.
Canadian government bond yields tumbled across the curve, tracking the move in U.S. Treasuries, in a shortened session ahead of a market holiday for Remembrance Day on Friday.
The 10-year touched its lowest level since Oct. 4 at 3.126% before recovering slightly to 3.154%, down 25.1 basis points on the day.
(Reporting by Fergal Smith; Editing by Kirsten Donovan and Jonathan Oatis)