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Canadian Currency Rises as Carney Reiterates Second-Half Growth Outlook

Canada’s dollar was little changed versus the greenback as Bank of Canada Governor Mark Carney reiterated that growth will accelerate in the second half of the year.

The loonie, as the currency is also known, was mixed against its most-traded counterparts tracked by Bloomberg after crude oil pared losses and a government report showed a measure of inflation increased in July. The yield on the 10-year government bond rose from a record low touched yesterday.

“The market keyed on the fact that there was less talk of potential easing, which the market seemed to have priced in,” said Matt Perrier, director of currency sales at Bank of Montreal’s BMO Capital Markets unit in Toronto. “Hikes aren’t imminent, but there was no hint of easing.”

The Canadian dollar traded at 99.01 cents versus the U.S. currency at 5:20 p.m. in Toronto, compared with 99.05 cents yesterday, when it touched 99.39 cents, the weakest level since Aug. 11. One Canadian dollar buys $1.010. The loonie lost 0.3 percent this week.

Government bonds were little changed, with the yield on the 10-year bond rising less than one basis point, or 0.01 percentage point, to 2.30 percent after falling yesterday to a record low 2.25 percent. The price of the 3.25 percent security maturing in June 2021 dropped 4 cents to C$108.26.

Carney said in his statement to the House of Commons Finance Committee in Ottawa that growth will gain momentum in the second half, “led by business investment and household expenditures.”

Carney Outlook

“Governor Carney still expects domestic demand to propel a bounce in the latter half of the year,” Peter Buchanan and Emanuella Enenajor, economists at Canadian Imperial Bank of Commerce’s CIBC World Markets unit, wrote in a research report. “So, absent a sudden deterioration in global activity exceeding already downbeat expectations, a rate cut this year is likely off the table.”

Carney said “several downside risks” have been realized since his July 19 decision to keep the bank’s main lending rate at 1 percent, including a deepening of Europe’s sovereign-debt crisis and “the persistent strength of the Canadian dollar.”

Core inflation, which excludes eight volatile items including gasoline, quickened last month to a 1.6 percent annual pace, compared with 1.3 percent in June, Statistics Canada said today. That matched economists’ forecast.

“There’s no doubt there’s a little bit of creeping inflation in Canada,” Firas Askari, the head currency trader at Bank of Montreal, said by phone from Toronto, referring to the inflation data. “Generally it’s better for the Canadian dollar.”

Bank of Canada policy makers have left their benchmark rate at 1 percent since September. Canadian employers slowed their pace of job creation, cut back on wage increases and reduced purchases in July, reports showed this month.

Finance Minister Jim Flaherty told lawmakers today strains in the U.S. and Europe haven’t derailed a plan to balance the budget by 2014.

To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Chris Fournier in Halifax, Nova Scotia, at cfournier3@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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