Canada dollar falls to 6-month low as CPI drop exceeds forecast

The Canadian dollar fell to the lowest level against its U.S. peer in almost six months after a report showed consumer prices declined more than forecast last month as growth cools in the world’s 11th largest economy.

The currency dropped for a third day against the greenback and the majority of its most-traded peers as Canada’s inflation rate declined 0.6 percent in December, compared with a 0.2 percent drop forecast in a Bloomberg News survey. The Bank of Canada trimmed its growth forecasts for the year and said interest rate increases were less urgent on Jan. 23..

“Inflation was much, much lower than expected,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, by phone from Toronto. “Given that we’re an inflation- targeting central bank, there’s very little reason to be looking to push rates up. It kind of suggests, as they indicated, low for longer is the trend.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell 0.6 percent to C$1.0087 per U.S. dollar at 10:22 a.m. in Toronto, reaching the weakest level since July 27. One loonie buys 99.14 cents.

The Canadian dollar posted the biggest decline versus its peers this week, with a 2.1 percent drop in the Bloomberg Correlation-Weighted Indexes, which tracks the currencies of 10- developed nations. The euro has gained 1 percent and the greenback has dropped 0.2 percent.

Price Swings

The loonie’s 14-day relative strength index against the U.S. dollar reached 26.1, below the 30 level that some traders see as sign that an asset may be about to reverse direction.

Futures for crude oil, Canada’s largest export, rose 0.2 percent to $96.18 per barrel and the Standard & Poor’s 500 Index rose 0.4 percent.

The country’s benchmark 10-year bonds fell, with yields rising four basis points, or 0.04 percentage point, to 1.93 percent. The 2.75 percent security maturing in June 2022 fell 39 cents to C$106.97.

The Bank of Canada will auction C$2.9 billion ($2.87 billion) of 10-year notes maturing June 2023 with a 1.5 percent coupon on January 30.

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