Canada’s Currency Rallies as March CPI Matches Forecast

Canada’s dollar gained versus its U.S. counterpart after consumer prices almost matched forecasts for March, bolstering speculation the Bank of Canada will move forward its timetable for raising interest rates.

The currency gained 0.7 percent this week versus the greenback, the most in seven weeks, after Bank of Canada Governor Mark Carney said the removal of stimulus may be “appropriate,” given stronger growth and inflation. Equities were higher after German business confidence unexpectedly rose. The March consumer price index was up 1.9 percent from a year earlier, compared with a forecast for a 2 percent increase.

“It’s slightly higher today on a risk sentiment move,” said John Curran, senior vice president in Toronto at CanadianForex Ltd., an online foreign-exchange dealer, in a telephone interview. “It should be stronger than it actually is. It’s losing ground on the crosses,” he said, referring to non-U.S. dollar trades.

Canada’s currency, nicknamed the loonie, advanced 0.3 percent to 99.24 cents per U.S. dollar at 5 p.m. in Toronto. One Canadian dollar buys $1.0077.

Bonds Fall

Benchmark government 10-year government bonds fell for a second day, pushing the yield up one basis point, or 0.01 percentage point, to 2.06 percent. The 3.25 percent securities maturing in June 2021 fell 13 cents to C$109.86.

Federal bonds have lost 0.7 percent this year, according to the Bank of America Merrill Lynch data.

Odds of an increase in the central bank’s target lending rate by the October meeting were about 64 percent today after the inflation data, according to Bloomberg calculations on overnight index swaps. They were about 19 percent on April 16, the day before the Bank of Canada suggested higher borrowing costs may be necessary to contain consumer debt levels.

Canada’s economy will grow at a 2.5 percent annualized pace this quarter, up from a January estimate of 1.8 percent, the Bank of Canada said in a quarterly policy report this week. Inflation will average 2 percent through June, higher than a previous estimate of 1.5 percent.

“The domestic market and even the trading market are quite comfortable with the economics of Canada,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada (NA) in Toronto, in a telephone interview. “People are also selling dollar-Canada on the back of improved global sentiment.”

Currency Outlook

The loonie will appreciate to 98 cents by the end of 2012, according to the median forecast in a Bloomberg News survey of economists.

The March CPI gain followed a 2.6 percent rise in February, Statistics Canada said today from Ottawa. The core rate, which excludes eight volatile items, also slipped to 1.9 percent from 2.3 percent. Economists surveyed by Bloomberg forecast 2 percent total inflation and core inflation of 1.9 percent.

“The deviation from expectations was fairly minor,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia (BNS) in Toronto, in a telephone interview. “We’ve been in a very tight trading range, but there are some very early signs we’re getting close to a break out to the downside for dollar- Canada,” meaning the Canadian dollar would appreciate.

Statistics Canada also said its index of leading economic indicators rose 0.4 percent in March, the ninth consecutive gain, led by a 0.6 percent increase in the housing component.

The Canadian dollar is up 0.7 percent during the past three months, the fourth most among 10 major currencies tracked by Bloomberg Correlation Weighted Indexes. It’s up 0.6 percent this year after dropping 1.8 percent last year, the indexes show.

To contact the reporter on this story: Chris Fournier in Halifax at cfournier3@bloomberg.net

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

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