Canadian Dollar Falls as Inflation Data Adds to Rate Speculation

The Canadian dollar weakened against its U.S. counterpart to the least since August as a lower-than- forecast advance in consumer prices added to speculation the central bank will place less emphasis on raising policy rates.

The loonie, as the currency is nicknamed for the image of aquatic bird on the C$1 coin, slumped against almost all of its most-traded peers. Bank of Canada Governor Mark Carney suggested in an Oct. 15 speech that next week’s economic forecast will reflect a slow global recovery.

“Inflation data out of Canada is taking tightening even more off the table,” Thomas Molloy, chief dealer at FX Solutions LLC, an online currency-trading company in Saddle River, New Jersey, said in a telephone interview. “Nothing firm came out of the EU summit, and fiscal cliff talk isn’t helping things.”

Canada’s currency dropped 0.8 percent to 99.36 cents per U.S. dollar at 5 p.m. in Toronto. The decline is the biggest since Aug. 24. One Canadian dollar buys $1.0064.

Investor risk aversion increased after German Chancellor Angela Merkel said it’s an open question whether European policy makers can meet the deadline they’d set hours earlier to establish a euro-area bank supervisor by year-end. Merkel spoke after a two-day European Union summit in Brussels wrapped up today.

Government bonds rose, pushing the benchmark 10-year note down 0.05 percentage point, or five basis points, to 1.84 percent. The price of the 2.75 percent notes maturing in June 2022 rose 49 cents to C$107.95.

Policy Meeting

The consumer price index rose 1.2 percent in September from a year ago, matching the August pace, Statistics Canada said today from Ottawa. The central bank’s preferred core rate slowed to 1.3 percent from 1.6 percent in August, the least in more than a year. Economists surveyed by Bloomberg forecast total inflation of 1.3 percent and a core rate of 1.4 percent.

Carney has kept his key lending rate at 1 percent for more than two years and will probably leave it unchanged again at the Oct. 23 policy meeting, according to a Bloomberg economist survey.

“The weak CPI data will have an impact on how the Bank of Canada telegraphs its forward-looking language,” Mazen Issa, Canada macro strategist at Toronto-Dominion Bank (TD)’s TD Securities unit, said in a phone interview. “The data shows that on a year-over-year basis, inflation will be fairly benign and the growth outlook won’t change between now and next week -- we’re still expecting to see below-trend growth.”

Futures traders decreased their bets that the Canadian dollar will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on an advance in the Canadian dollar compared with those on a drop -- so-called net longs -- was 93,750 on Oct. 16, compared with net longs of 95,628 a week earlier.

Crude oil, the nation’s largest export, fell 2.1 percent to $90.17 a barrel in New York. The Standard & Poor’s 500 Index fell for a second day, declining 1.7 percent.

“It’s generally risk off,” said Molloy of FX Solutions.

To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Katia Dmitrieva in Toronto at edmitrieva1@bloomberg.net

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

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