Canada Dollar Falls to 4-Week Low as Poloz Keeps Inflation View

The Canadian dollar fell to a four-week low after the Bank of Canada left interest rates unchanged and repeated concern that low inflation and weak exports are hindering the nation’s economy.

The currency weakened against most of its major peers after Bank of Canada Governor Stephen Poloz left the benchmark interest rate at 1 percent and reiterated that future moves could be either up or down depending on economic data. Canada’s currency has been the worst performer among Group of 10 peers against the U.S. dollar during the past 12 months as the central bank began voicing concern about persistently low inflation and the importance of a weaker Canadian dollar to boost the exports.

“As long as the economy is soft, and as long as there’s uncertainty about U.S. growth, and as long as exports remain tepid, I think the Bank of Canada is going to be very careful not to say or do anything to trigger a strengthening in the currency,” said Emanuella Enenajor, an economist at Bank of America Corp., by phone from New York. “The bank is likely to err on the side of caution.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell 0.3 percent to C$1.0940 per U.S. dollar at 5:05 p.m. in Toronto. It reached the weakest level since May 6. One Canadian dollar buys 91.41 U.S. cents.

Bond Moves

Canada’s benchmark 10-year bond fell after erasing gains earlier today. The yield rose one basis point, or 0.01 percentage point, to 2.35 percent, reaching the highest level since May 13. The 2.5 percent security maturing in June 2024 dropped nine cents to C$101.32.

The loonie also weakened as a government report showed an unexpected trade deficit for April.

Canada’s merchandise trade balance swung to a deficit of C$638 million ($584 million), after a revised surplus of C$766 million in March, Statistics Canada said in Ottawa. Economists surveyed by Bloomberg forecast a C$200 million surplus, based on the median of 19 forecasts.

“Business investment and export growth has not shown a pickup in growth to the same extent that they thought,” Adrian Miller, director of fixed-income strategy at GMP Securities LLC, said by phone from New York before the data. “Talking down the loonie, while maintaining the stated neutral bias, which provides the bank with flexibility, is currently the primary policy tool.”

Economic Growth

Canada’s economic growth slumped in the first quarter as a harsh winter in North America slowed housing construction, business spending and exports.

Gross domestic product grew at a 1.2 percent annualized pace in January through March, compared with a downwardly revised 2.7 percent in the prior three months, a report last week showed. Economists surveyed by Bloomberg predicted growth would slow to a 1.8 percent pace.

A report Friday will show hiring rebounded in May with 25,000 new positions created after the country lost 28,900 jobs the previous month, according to the median estimate of a Bloomberg survey of 22 economists.

Canada’s consumer price index rose 2 percent from a year ago in April, with energy prices jumping 8.4 percent, Statistics Canada said May 23.

BOC Policy

“Weighing recent higher inflation readings against slightly increased risks to economic growth leaves the downside risks to the inflation outlook as important as before,” BOC policy makers said in a statement from Ottawa. Future economic data will determine “the timing and direction” of the next move, the bank said.

The central bank said it was focused on the core rate, which excludes eight volatile products, and climbed 1.4 percent in April after a prior gain of 1.3 percent, still “significantly below 2 percent.” The bank forecast in April that core inflation won’t reach 2 percent until the start of 2016 because spare economic capacity will restrain price gains.

“The Bank of Canada did not change their read on low inflation, despite the move up in headline inflation to 2 percent,” said Greg Anderson, head of global foreign-exchange strategy at Bank of Montreal, by phone from New York. “The data suggests they should have expressed less worry about low inflation, but they didn’t. And they didn’t presumably because they wanted the Canadian dollar not to strengthen.”

The loonie has fallen 3.3 percent this year among 10 developed-nation peers tracked by Bloomberg Correlation-Weighted Currency indexes. The U.S. dollar fell 0.1 percent.

To contact the reporter on this story: Ari Altstedter in Toronto at aaltstedter@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Paul Cox, Kenneth Pringle

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