Canadian Dollar Rises on Inflation, Eased European Debt Concern

The Canadian dollar rallied for the first time in five days after government reports showed consumer prices rose in October more than forecast and leading indicators increased on gains in housing and the money supply.

The Canadian currency advanced from a one-month low as eased European debt concern encouraged demand for riskier assets. It pared its weekly drop as the inflation report reduced speculation that the Bank of Canada will cut borrowing costs to support the economy.

“There’s much better sentiment out of Europe today,” said Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York, in a telephone interview. “For today, at least, there’s a sign of some relief. The stronger-than-expected CPI has also helped to give the Canadian dollar a boost.”

The loonie, as the Canadian currency is also known, appreciated 0.2 percent to C$1.0276 per U.S. dollar at 5 p.m. Toronto time, reducing its weekly drop to 1.7 percent. It earlier touched C$1.0302, the weakest level since Oct. 12. One Canadian dollar buys 97.31 U.S. cents.

Bonds fell, pushing the 10-year yield up three basis points, or 0.03 percentage point, to 2.12 percent. The price of the 3.25 percent securities maturing in June 2021 dropped 27 cents to C$109.67. Government debt securities have returned 8.1 percent this year, the most since 2008, according to a Bank of America Merrill Lynch index.

Inflation Report

Consumer prices rose 0.2 percent in October, matching the previous month’s increase, Statistics Canada said today in Ottawa. The median forecast of 24 economists in a Bloomberg News survey was for a 0.1 percent advance.

The consumer price index climbed 2.9 percent from a year earlier, compared with a 3.2 percent pace in September and a May peak of 3.7 percent.

Bank of Canada Governor Mark Carney has said he has “flexibility” in how soon he meets the bank’s 2 percent inflation target during the economic recovery. Policy makers have kept the key lending rate at 1 percent since September 2010, and a decision on Oct. 25 removed a reference to the need to reduce monetary stimulus.

“This is a central bank that isn’t focused on inflation,” said Firas Askari, head of currency trading at Bank of Montreal’s BMO Capital Markets in Toronto, in a telephone interview. “This is a bank that’s focused on the global crisis unfolding.”

Oil Declines

The Standard & Poor’s 500 Index was little changed. Futures on crude oil, Canada’s biggest export, dropped 1.2 percent to $97.45 a barrel after gaining 1.5 percent earlier.

European officials may start talks on a mechanism for the European Central Bank to lend to the International Monetary Fund for sovereign bailouts in the region, Dow Jones Newswires reported. Agreement on the proposal may result in an announcement at a European Union summit Dec. 9, the news agency reported, citing two unidentified people with direct knowledge of the matter.

Canada’s index of leading economic indicators rose 0.2 percent in October on gains in housing and the money supply, Statistics Canada said. Economists surveyed by Bloomberg News forecast the index would rise 0.1 percent, based on the median of eight estimates. It was the fourth consecutive increase after September’s reading was revised to a 0.1 percent gain from a decline of the same size.

An index of U.S. leading indicators climbed in October more than forecast, signaling Canada’s biggest trading partner will keep growing in early 2012.

The Conference Board’s gauge of the outlook for the next three to six months rose 0.9 percent, the biggest jump since February, after a 0.1 percent September increase, the research group in New York said today. The median forecast of 56 economists in a Bloomberg News survey projected the gauge would advance 0.6 percent.

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