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Canada's Dollar Touches Lowest in Month After Report Shows Inflation Slows
Canada’s currency depreciated for a second week, dropping to the lowest level in a month, after a bid for Potash Corp. of Saskatchewan Inc. failed to offset weaker-than-expected economic data.
A report yesterday showed inflation in July rose less than some economists anticipated, prompting traders to trim bets on Bank of Canada interest-rate increases ahead of their next meeting Sept. 8. Economic reports in Canada and the U.S. reinforced the view the North American economy is slowing while stocks and crude oil prices fell, trimming demand for commodity- exporting currencies.
“The biggest thing carrying us through the week until Wednesday was the BHP bid for Potash -- that really drove a lot of speculative Canadian dollar buying,” said Sacha Tihanyi, a currency strategist in Toronto at Bank of Nova Scotia’s Scotia Capital unit. “We could have been a lot worse off than we are right now vis-a-vis the rest of the majors if it weren’t for the BHP bid.”
Canada’s currency fell 0.4 percent this week to C$1.0475 per U.S. dollar in Toronto, from C$1.0419 Aug. 13. It touched C$1.0515, the weakest level since July 20. One Canadian dollar buys 95.47 U.S. cents.
$40 Billion Offer
Potash received a $30 billion offer Aug. 17, boosting demand for growth assets. Saskatoon-based Potash, the world’s largest fertilizer producer, rejected the unsolicited takeover proposal from BHP Billiton Ltd. as too low, prompting speculation about a higher bid. BHP commenced a hostile offer at $130 a share.
A successful bid for Potash would trigger “significant buying” of the Canadian dollar, enough to cover as much as six months’ worth of Canada’s historic trade balance, Citigroup Inc. analysts said.
Canada’s consumer price index for July climbed 1.8 percent from a year earlier, after a 1 percent annual gain in June, Statistics Canada said today. The core rate, which excludes eight volatile items and changes to indirect taxes, decelerated to 1.6 percent from 1.7 percent. Economists’ median forecasts were for an inflation rate at 1.9 percent and a core rate at 1.8 percent, a Bloomberg News survey said.
Bank of Canada policy makers next meet on Sept. 8 to determine rates. They raised the benchmark rate by 25 basis points to 0.75 percent at their last meeting on July 20, the second such increase in two months, after being on hold since April 2009 at a record low 0.25 percent.
‘Breathing Room’
“It’s given it a bit of breathing room,” said CJ Gavsie, managing director for foreign exchange trading in Toronto at Bank of Montreal. “Inflation is not pressing in the way we were concerned it would be and it basically buys them time to sit back and take a look at what else is going on in the world.”
European Central Bank council member Axel Weber said Aug. 19 in an interview with Bloomberg Television in Frankfurt that the ECB should help banks through end-of-year liquidity tensions before determining in the first quarter when to withdraw emergency lending measures. His comments sent the euro, along with riskier assets including Canada’s dollar, lower because they suggest the ECB will support the region’s banks for longer than some investors expected.
Investors sought safety Aug. 19 after wholesale sales numbers in Canada and initial jobless claims in the U.S. unexpectedly showed the North American recovery may be weaker than anticipated.
Sales Slump
Canadian wholesale sales unexpectedly fell in June on fewer shipments of machinery and equipment. The drop largely reflected falling prices for goods. Overall sales fell 0.3 percent to C$43.9 billion ($42.8 billion), Statistics Canada said Aug. 19 in Ottawa. Economists expected a 0.4 percent increase in total sales, based on the median of 12 responses in a Bloomberg survey.
Claims for U.S. jobless benefits jumped to the highest level since November and Philadelphia-area manufacturing shrank for the first time in a year, indicating the economy may be slowing faster than forecast.
The number of unemployment claims unexpectedly shot up by 12,000 to 500,000 in the week ended Aug. 14, Labor Department figures showed Aug. 19 in Washington. The Federal Reserve Bank of Philadelphia’s general economic index turned negative in August, signaling contraction.
Canadian existing home sales fell 6.8 percent in July on a seasonally adjusted basis following the introduction of a revised sales tax in two provinces, the Canadian Real Estate Association said today. The value of homes sold dropped 7 percent to C$10.5 billion.
Oil fell for a second week, slipping 2.6 percent to $73.46 a barrel. The Standard & Poors 500 index fell 0.7 in New York, while the S&P TSX Composite Index climbed 1.7 in Toronto.
For the week, the Canadian dollar fell against the greenback the most of its 16 most-traded counterparts, including a 2.2 percent underperformance versus the Swiss franc.
To contact the reporter on this story: Mary Childs in New York at mchilds5@bloomberg.net
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