Canada dollar rises vs. majors on biggest CPI gain since 1991

Inflation Rate

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.”

Carney’s View

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%.

Bloomberg News

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