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.
Yen Concern
Canadian finance minister Jim Flaherty said he’s concerned about the Japanese government’s policy of weakening the yen to stimulate growth, and he spoke to his Japanese counterpart about it, during an interview with Bloomberg Television’s Erik Schatzker at the World Economic Forum in Davos, Switzerland.
“We’re worried about deflation in their economy and ours and others,” he said. “We have a strong currency because we’re a reliable, fiscally responsible country. It’s a good thing, but it’s also a bad thing because our currency bounces up. We’re watching it.”
Canada’s annual inflation rate held at a three-year low of 0.8 percent in December, keeping it below the bottom of the central bank’s target band, as food and shelter costs moderated. The core CPI, which excludes eight volatile products, slowed to 1.1 percent from a year earlier from 1.2 percent, the slowest since February 2011.
“Dollar-Canada is searching for a new range and that new range will likely be governed by what the market expects will be a weak CPI, so we could be in store for a move to and through the next level of resistance,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada by phone from Toronto, before the report. “Canada has been held up in the past on the inference the Bank of Canada would be the first out of the G-7 block to raise rates. Governor Mark Carney put an end to that speculation.”
