Bloomberg News

Canada’s Currency Remains Higher After March Inflation

May 18, 2012

Canada’s dollar gained for the first day this week versus its U.S. counterpart as data showed consumer prices rose more than forecast, bolstering the argument for the central bank to raise interest rates this year.

The currency advanced earlier after touching a four-month low amid concern Greece’s potential exit from the euro would fracture the currency bloc. It tumbled yesterday as bets on a rate increase dropped after unexpectedly weak economic data in the U.S., Canada’s biggest trade partner.

“Better-than-expected inflation numbers are giving the Canadian dollar a boost,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, in a telephone interview. “Inflationary concerns are potentially creating an environment for the Bank of Canada to take back some of the excess monetary stimulus, however that environment is being very much driven by events outside of Canada.”

The Canadian dollar, nicknamed the loonie for the image of the bird on the C$1 coin, appreciated 0.4 percent to C$1.0151 per U.S. dollar at 8:43 a.m. in Toronto. It touched C$1.0227 earlier, the weakest level since Jan. 16.

The consumer price index rose 2 percent in April from a year ago compared with a 1.9 percent gain the prior month, Statistics Canada said today from Ottawa. The core inflation rate, which excludes eight volatile components, increased to 2.1 percent after a March gain of 1.9 percent. Economists surveyed by Bloomberg forecast that both the total and core rate would remain unchanged at 1.9 percent.

Carney Statement

Bank Governor Mark Carney said last month interest-rate increases may be necessary as growth and inflation outpace his earlier projections, and as slack disappears from the economy. Policy makers have kept the benchmark rate at 1 percent since September 2010.

Odds of a rate boost in September sank to 39 percent yesterday after the U.S. economic data, from about 55 percent the day before, according to Bloomberg calculations on trading in overnight index swaps.

The loonie dropped yesterday after a gauge of manufacturing in the Philadelphia region and the Conference Board’s index of leading indicators unexpectedly fell.

To contact the reporter on this story: Cecile Gutscher in Toronto at cgutscher@bloomberg.net;

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


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