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Loonie Drops Below Parity With U.S. Dollar as Commodities Fall

Canada’s dollar declined against its U.S. counterpart for a second day, touching below parity, as commodities fell and the country’s inflation rate accelerated less than forecast in December.

The loonie, as the currency is nicknamed, weakened against all but three of its 16 most-traded peers amid a drop in raw materials including crude oil, Canada’s biggest export. Crude fell to the lowest in almost eight weeks after Saudi Arabian Oil Minister Ali al-Naimi signaled OPEC may bolster production and maintain spare capacity to meet rising fuel demand.

The lower-than-predicted inflation rate is “going to make possible interest-rate hikes in the near future less likely,” said Darren Richardson, senior corporate dealer in Toronto at CanadianForex Ltd., an online foreign-exchange dealer. “A lot of yield-chasing investors moved away from the Canadian this morning.”

Canada’s currency depreciated 0.3 percent to 99.67 cents per U.S. dollar at 4:57 p.m. in Toronto, from 99.35 cents yesterday. It touched C$1.0004, the weakest level since Jan. 20. One Canadian dollar buys 1.0033 U.S. dollars.

Consumer prices rose 2.4 percent in December from a year earlier after a 2 percent gain in November, Statistics Canada said today in Ottawa. The core rate, which excludes eight volatile items such as gasoline, quickened to 1.5 percent, from 1.4 percent. Economists forecast annual inflation would be 2.5 percent and the core rate 1.6 percent, according to the median of 25 estimates in a Bloomberg News survey.

‘Sufficient Justification’

The U.S. dollar “has shown a tendency to want to move higher in recent days, and the soft rate of core inflation in today’s report will provide a sufficient justification for a test of the top of the recent trading range,” David Tulk, chief macro strategist at Toronto-Dominion Bank’s TD Securities unit in Toronto, said today in a note to clients.

Crude oil for March delivery dropped as much as 2 percent to $86.12 a barrel in New York, the lowest level since Dec. 1, before trading at $86.25. It has declined 5.6 percent since Dec. 31. The Thomson Reuters/Jefferies CRB Index of raw materials fell 1.5 percent, the most on a closing basis since Jan. 4.

Bank of Canada Governor Mark Carney on Jan. 18 left benchmark interest rates unchanged at 1 percent while reiterating that future interest-rate increases would be “carefully considered” because the recovery is threatened by a strong currency and Europe’s fiscal crisis.

The U.S. Federal Reserve may affirm following a meeting that ends tomorrow its plan to buy up to $600 billion of Treasury securities through June to reduce long-term yields and spur employment. The Fed will leave its benchmark interest rate unchanged at zero to 0.25 percent, according to all 100 economists surveyed by Bloomberg News.

The yield on Canada’s benchmark 10-year note fell four basis points, or 0.04 percentage point, to 3.27 percent. The price of the 3.5 percent security due in June 2020 rose 30 cents to C$101.80.

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