* Canadian dollar at C$1.2955, or 77.19 U.S. cents
* Bond prices lower across a steeper yield curve
* Two-year yield touches its highest since October 2014
TORONTO, July 4 (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Tuesday after comments by Bank of Canada Governor Stephen Poloz supported the view the central bank will raise interest rates as early as next week.
Inflation in Canada should be well into an uptrend by the first half of 2018, Poloz told German newspaper Handelsblatt, adding that policy normalization must begin before price growth hits its target. Bank of Canada officials' recent assertions that a pair of 2015 interest rate cuts did their job in cushioning the economy from collapsing oil prices appear to be paving the way for a tightening move as soon as July 12. of a rate hike next week are better than 50 percent, data from the overnight index swaps market shows. BOCWATCH
At 9:42 a.m. ET (1342 GMT), the Canadian dollar CAD=D4 was trading at C$1.2955 to the greenback, or 77.19 U.S. cents, up 0.4 percent.
The currency traded in a range of $1.2955 to C$1.3018.
On Friday, the loonie touched its strongest intraday in nine months at C$1.2947. It was helped by data showing Canada's economy grew for a sixth consecutive month in April, while a central bank survey of business sentiment showed firms were feeling more upbeat. to support for the Canadian dollar, prices of oil, one of Canada's major exports, edged higher.
U.S. crude CLc1 prices were up 0.15 percent at $47.14 a barrel, extending recent gains on tentative signs a persistent rise in U.S. crude production may be slowing. have cut bearish bets on the Canadian dollar for a fifth straight week, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed on Friday. Canadian dollar net short positions tumbled to 49,495 contracts as of June 27 from 82,881 a week earlier. government bond prices were lower across a steeper yield curve after reopening following the Canada Day holiday on Monday. They were pressured by Poloz's hawkish comments and by U.S. manufacturing data on Monday that boosted expectations the Federal Reserve would raise interest rates again this year. two-year CA2YT=RR price fell 5.5 Canadian cents to yield 1.131 percent and the 10-year CA10YT=RR declined 54 Canadian cents to yield 1.825 percent.
The two-year yield touched its highest intraday since October 2014 at 1.139 percent.
Canada's trade data for May is due on Thursday and the June employment report is due on Friday. ECONCA