Canada’s dollar rose versus a majority of its most traded peers after consumer prices rose at the fastest monthly pace in more than 20 years in February, raising speculation about an interest-rate increase.
The currency fluctuated against the U.S. dollar after gaining to the strongest level in a month as consumer prices rose 1.2% last month, the biggest gain since January 1991 when the country implemented a new sales tax, Statistics Canada said. The discount Canadian oil producers face to the U.S. benchmark narrowed yesterday to the least in almost five months. The so-called loonie fell earlier as concern over the bailout for Cyprus and a political deadlock in Italy undermined demand for higher-yielding assets.
The CPI number “does give it stronger tailwind to keep the Bank of Canada on track for an eventual rate increase,” said Joe Manimbo, a market analyst at Western Union Business Solutions, a unit of Western Union Co., said by phone from Washington. “The Canadian dollar has take more of its cues from the improving U.S. growth story, and that could have positive effects on Canada’s economy.”
The loonie was little changed at C$1.0164 per U.S. dollar in Toronto at 11:07 a.m. after touching C$1.0150, the strongest since Feb. 22. It earlier fell as much as 0.3%. One Canadian dollar buys 98.39 U.S. cents.
Canada’s benchmark 10-year government bonds jumped, lowering yields by five basis points, or 0.05 percentage point, to 1.77%. The 2.75% security maturing in June 2022 increased 43 cents to C$108.30, the highest since Jan. 1. The Bank of Canada will auction C$3.3 billion ($3.3 billion) of 10- year notes today at noon.
Futures on crude oil fell 0.6% to $95.81 per barrel in New York after touching $96.45 yesterday, the highest point since Feb. 20. Prices have risen 2.8% during the past month.
The discount between the Canadian and American benchmark crude oil blends was at C$16.50 today after touching C$16.25 for a second day yesterday, the narrowest since Oct. 17. It’s down from a record C$42.50 on Dec. 14. Oil is Canada’s largest export and the U.S. is the nation’s biggest export destination.
“The oil picture has swung substantially in the Canadian dollar’s favor in the past month,” Adam Button, a currency analyst at forexlive.com in Montreal, said by phone. “Oil trades have been a tailwind for the loonie.”
Traders are the least bearish on the loonie in two months, as so-called risk-reversals show options traders are paying the least for protection against loonie weakness since Jan. 24. The three-month 25-delta risk reversal rate touched 0.95 percentage point for a second day from as much as 1.49 percentage points on Feb. 26, its highest since Sept. 7.
The loonie erased earlier losses versus the greenback as prices were up 1.2% from a year earlier, the highest since October, following a 0.5% gain in January. The annual core inflation rate, which excludes eight volatile items, accelerated to 1.4% from 1% in January, the Ottawa-based agency said.
Economists predicted total inflation would accelerate to 0.8% and the core rate would be 1%, according to median estimates.
“It was the largest jump in a while, but it’s unlikely to be setting off alarm bells in the Bank of Canada,” Button said. “Even if we had another two or three reports like this one, we’d still be within the bank’s target range.”
Central-bank Governor Mark Carney reiterated to lawmakers last month in Ottawa a rate boost is less urgent than previously anticipated because the weaker-than-expected economy is keeping inflation below the bank’s 2% target.
Canada’s economy grew 0.1% in January after shrinking 0.2% the month before, according to the median estimate of a Bloomberg survey of 24 economists before the government reports the data March 28.
Canada’s dollar gained versus the euro as a bailout for Cyprus and a political deadlock in Italy undermined demand for the region’s assets.
Cyprus may announce what type of capital controls it plans to implement today as its leaders seek to prevent cash outflows when the nation’s banks reopen tomorrow. Lenders have been closed since a plan by the European Union to force losses on some bondholders and depositors in exchange for a 10 billion- euro ($12.8 billion) bailout.
In Italy, Democratic Party head Pier Luigi Bersani was rejected by leaders of Beppe Grillo’s Five Star Movement after their talks aimed at forming a governing coalition were broadcast live on the Internet.
The Canadian dollar has gained 0.7% in the past three months against nine other developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The U.S. dollar has picked up 3.3%, while the euro has fallen 0.9%.