Bloomberg News

Canadian Dollar Falls as Inflation Rate Slows More Than Forecast

July 22, 2011

July 22 (Bloomberg) -- Canada’s dollar weakened from almost a three-year high after a government report showed the nation’s inflation rate slowed in June more than forecast.

The loonie, as the currency is also known, pared its weekly gain versus the greenback to 0.6 percent as the report discouraged speculation that the Bank of Canada will resume increasing borrowing costs. The central bank raised its inflation forecast for the next nine months this week.

“Every aspect of the release was a big miss in light of the market’s expectation that core inflationary pressures were rising, dovetailing with the bank’s guidance provided earlier this week,” Jack Spitz, managing director of foreign exchange at National Bank of Canada, said by phone from Toronto. “We’re already seeing it in terms of the Canadian dollar.”

The Canadian dollar slid for the first time in four days, depreciating 0.5 percent to 94.80 cents versus the greenback at 5 p.m. in Toronto, from 94.33 cents yesterday, when it touched 94.23 cents, the strongest level since November 2007. One Canadian dollar buys $1.0549.

The currency weakened from about 94.35 cents to 94.65 cents during the 40 minutes before Statistics Canada released the CPI data at 7 a.m. Toronto time.

Release Time

“There was, once again, heavy speculation about the number before the release,” said Sebastien Galy, a senior foreign- exchange strategist at Societe Generale SA in London, via e- mail.

Canada’s statistics agency made economic data available to companies licensed to distribute its data up to 59 seconds before the official publication time for more than six years, according to a KPMG LLP report published yesterday on Ottawa- based Statistics Canada’s website.

“KPMG contacted a number of licensed distributors and concluded that it is unlikely that any data were actively released to their clients prior to the official release time,” a Statistics Canada summary of the report said.

The KPMG investigation was ordered in December by then- Industry Minister Tony Clement. The agency stopped the practice on Nov. 25 after being alerted to it by Bloomberg News.

Official Response

“Statistics Canada applies strict security procedures during media lockups to prevent release of protected information prior to official release time,” Peter Frayne, the head of Statistics Canada’s media relations in Ottawa, wrote in an e- mail today. “These procedures were followed during this morning’s lockup and we have no indication that anything unusual occurred.

Consumer prices advanced 3.1 percent in June from a year earlier after a 3.7 percent gain in the previous month, Statistics Canada said today in Ottawa. The median forecast of 24 economists in a Bloomberg News survey was for a 3.6 percent rate of increase.

“The way the market had already priced in a shift by the Bank of Canada, there was already a certain amount of caution in CPI failed to deliver to expectations,” said Michael Leavitt, an institutional-derivatives broker at MF Global Canada Co. in Montreal, via e-mail. The CPI number “relieves some of the pressure the market had built up on the Bank of Canada moving rates in September,” he said.

Target Rate

“The Canadian dollar, like the Swiss franc, is starting to show the impact of a high currency,” Societe Generale’s Galy said. “Canada is a land for bond investors rather than foreign- exchange investors in the coming weeks.”

Government bonds rose, pushing the yield on benchmark 10- year bonds down seven points to 2.93 percent, as the price of the 3.25 percent bond due June 2021 rose 61 cents to C$102.74.

Yields on the six-month overnight index swap, a security based on what investors expect the central bank’s rate will average during that period, dropped 2.1 basis points to 1.11 percent after the CPI number, after climbing 7.9 percent over the three days since policy makers said July 19 that monetary stimulus “will be withdrawn.” The statement omitted the word “eventually” that had been contained in previous releases.

The currency briefly pared losses after retail sales unexpectedly rose in May.

Retail sales rose 0.1 percent to a seasonally adjusted C$37.5 billion ($39.5 billion), Statistics Canada said today in Ottawa. Economists forecast a 0.3 percent decline, according to the median estimate of 23 economists in a Bloomberg survey.

--With assistance from Greg Quinn, Andrew Mayeda and Paul Badertscher in Ottawa. Editors: Paul Cox, Dave Liedtka

To contact the reporter on this story: Chris Fournier in Halifax at cfournier3@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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