Canada’s dollar rose from the lowest level in a week as stocks and commodities gained, boosting demand for higher-yielding assets.
The loonie, as Canada’s currency is known for the image of the water bird on the C$1 coin, erased a gain earlier after the inflation rate in May was the slowest since June 2010, supporting the central bank’s projection for modest output and price gains. The Canadian dollar rose against most of its major counterparts.
“The rebound in risk has been good for the loonie,” said Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. (WU:US) “It has helped overshadow the inflation number out of Canada that suggested policy makers may be in no hurry to shift toward a tightening bias.”
The Canadian dollar rose 0.5 percent to C$1.0246 per U.S. dollar at 5 p.m. in New York. It earlier fell to as low as C$1.0300, the weakest since June 14. One Canadian dollar buys 97.60 U.S. cents.
Canadian 10-year bonds declined, pushing the yield up six basis points, or 0.06 percentage point, to 1.80 percent. The yield touched 1.615 percent on June 1, the lowest since 1950, according to Bloomberg and Bank of Canada data.
The Standard & Poor’s 500 Index rose 0.7 percent and oil, Canada’s largest export, gained 2.4 percent to $80.11 a barrel in New York.
Canada’s consumer price index added 1.2 percent in May from a year ago, compared with a 2 percent gain the prior month, Statistics Canada said today from Ottawa. The core rate, which excludes eight volatile products, increased 1.8 percent after an April gain of 2.1 percent. Economists surveyed by Bloomberg forecast a 1.5 percent rise in consumer prices and a 1.9 percent gain in the core.
“The numbers weren’t dramatically outside of expectations, but a little bit on the softer side,” said Shane Enright, executive director in Toronto at Canadian Imperial Bank of Commerce’s CIBC World Markets unit. “The market feels a little bit on the fragile side.”
Bank of Canada Governor Mark Carney, speaking yesterday in Halifax, Nova Scotia, reiterated that he may raise interest rates as the economy continues to move toward full output.
Toronto-Dominion Bank (TD) and Royal Bank of Canada economists are reconsidering forecasts for higher borrowing costs after Finance Minister Jim Flaherty took steps to cool the nation’s housing market.
September 2012 bankers’ acceptances contracts used to gauge market expectations of a change in monetary policy dropped yesterday to 1.185 percent from 1.225 percent.
Flaherty’s move to diffuse a potential housing bubble by shutting out some first-time home buyers will offset low central bank borrowing costs that have fueled a debt surge in Canada and threaten the country’s economy, according to David Tulk, chief Canada macro strategist at TD Securities in Toronto.
Changes to mortgage rules are equivalent to a rate increase of 1.5 percentage points to 2 percentage points, and will prompt him to review his forecasts for two quarter-point increases this year, Tulk said.
“The bigger, broader theme is global growth slowing, oil prices lower and a central bank that is less likely to hike,” said Camilla Sutton, a currency strategist at Scotiabank in Toronto, in a phone interview. “Plus, we’ve had weak data.”
The Canadian dollar fell 0.3 percent this week versus its U.S. counterpart, which gained against most major peers on demand for safety amid concerns global growth is stalling.
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