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The Bank of Canada will have scope to raise interest rates by another 50 basis points to 1.0% at their next policy meeting following the release of stronger than expected growth data, which should underpin the Canadian Dollar going forward.

Canadian GDP rose 1.1% month-on-month in February, ahead of the 0.8% forecast by markets and StatCan gave an upbeat estimate for March of +05%.

"The above-consensus February figure and solid March estimate, puts Q1 as a whole on track for a 5.6% annualized growth rate, well above the 3% forecast contained within the Bank of Canada's latest MPR," says Andrew Grantham, economist at CIBC Capital Markets.

Growth was widespread with all sectors reporting solid upticks, with StatCan saying the easing of Covid restrictions looks to have provided the majority of the impulse.

The data would appear to boost the odds of another sizeable 50 basis point rate hike from the Bank of Canada on June 01.

"Another stronger-than-expected data release supports the case for another non-standard 50bp hike in interest rates at the next BoC meeting," says Grantham.

A combination of elevated energy prices, solid economic growth and expectations for a rapid rate of interest rate hikes should keep the Canadian Dollar underpinned going forward, particularly against the likes of the Euro and Pound.

"The Canadian dollar jumped from seven-week lows as oil strengthened above $106 and the domestic economy showed more momentum than expected, keeping big rate hikes on Ottawa’s table," says Joe Manimbo, Senior Market Analyst at Western Union Business Solutions.

"Fresh signs of a strengthening economy suggest the Bank of Canada will follow up its recent 50 basis-point rate hike to 1.0% with another when it next meets on June 1," he adds.

The Pound to Canadian Dollar is at 1.5977 at the time of writing, the Euro to Canadian Dollar at 1.3407 and the U.S. to Canadian Dollar at 1.2734. (Set your FX rate alert here).

Analysts at RBC Bank say the strength of the economy combined with a shortage of labour mean the Bank of Canada will remain under pressure to accelerate its rate hiking agenda.

Claire Fan, Economist at RBC Economics, says "labour shortages are exceptionally acute, and that’s true even for close contact sectors that have yet to fully recover."

The unemployment rate in Canada in April at 5.3% was its lowest level on records dating back to 1976.

"Inflation surged higher again in March and the ongoing Russian invasion into Ukraine and regional lockdowns in China will only risk exacerbating supply chain challenges and worsening inflation concerns," she says.

RBC expects pressure to continue building on the Bank of Canada to withdraw monetary stimulus more rapidly.

Any step up in the pace the Bank of Canada approaches rate hikes could underscore the Canadian Dollar further.