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Canadian Dollar Reaches Two-Week Low as Inflation Slows

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Dec. 21 (Bloomberg) -- The Canadian dollar touched a two-week low against its U.S. counterpart as the inflation rate rose the least in more than three years last month, damping bets the Bank of Canada will raise interest rates anytime soon.

The Canadian currency declined on the week as U.S. House Republican leaders scrapped a plan to allow higher taxes, throwing budget talks into turmoil. Canada’s dollar extended losses after the consumer price index fell outside the central bank’s target band, on dropping automobile prices and a moderation in gasoline costs. The so-called loonie declined as oil, the nation’s biggest export, and stocks dropped.

“CPI was certainly a tad weaker than expected, and that certainly doesn’t favor any bullish rhetoric from the Bank of Canada going forward,” Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp., said by phone.

The loonie, as the Canadian currency is known for the image of the waterfowl on the C$1 coin, fell 0.6 percent to 99.32 cents per U.S. dollar at 5 p.m. in Toronto. It touched 99.53, its weakest level since Dec. 4. One loonie buys $1.0068.

The Canadian dollar’s 0.8 percent weekly loss trimmed the currency’s monthly gain to 0.1 percent. It’s down 1 percent this quarter.

Futures of crude oil fell 1.3 percent to $88.93 a barrel after dropping as much as 2.4 percent. The Standard & Poor’s 500 Index of stocks declined 1 percent.

Government bonds rose, with the benchmark 10-year bond yield falling three basis points, or 0.03 percentage point, to 1.81 percent. The 2.75 percent security due in June 2022 rose 30 cents to C$108.18.

CPI, GDP

The consumer price index gained 0.8 percent in November from a year ago, compared with 1.2 percent in the prior three months, Statistics Canada said today from Ottawa. Core inflation, which excludes eight volatile items, slowed to 1.2 percent from 1.3 percent. Economists surveyed by Bloomberg forecast that the total rate would be 1.1 percent and core inflation would be 1.3 percent.

“With Governor Mark Carney leaving, there may be anticipation for slightly more dovishness” from the Bank of Canada, Audrey Childe-Freeman, head of foreign-exchange strategist at Bank of Montreal, said by phone from London about the departing central-bank chief. “If you start getting numbers on the inflation front weaker than expected, that may add on to this view.”

Interest Rate

A separate report showed Canada’s gross domestic product grew 0.1 percent to an annualized C$1.29 trillion ($1.30 trillion) in October after stalling in September and shrinking 0.1 percent in August. The increase matched the median forecast in a Bloomberg economist survey with 23 responses.

The loonie has declined 0.8 percent since the International Monetary Fund on Dec. 19 said the Bank of Canada should refrain from raising interest rates until the end of next year to help fuel growth.

Carney has kept the key lending rate at 1 percent for more than two years even as he maintained a bias to raise them if the economy neared full capacity. He will leave the central bank June 1 to take the same job with the Bank of England.

Canada’s dollar fell earlier as U.S. House Speaker John Boehner’s plan to allow tax-rates to rise on people with annual incomes over $1 million failed to garner votes from his own party, causing Boehner to withdraw the proposal.

‘Further Away’

Higher tax rates on the wealthy have been a key demand of President Barack Obama in reaching a budget deal to avoid $600 billion in mandatory tax increases and spending cuts which could plunge the U.S. into recession if they take effect in January. Obama had promised to veto the proposal for not raising enough new tax revenue.

“Equities had rallied on the back of markets anticipating a resolution, and I think given what’s happened overnight that’s looking further away,” said David Bradley, director of foreign-exchange trading in Toronto at Scotia Capital Inc., a unit of Scotiabank. “There was a lot of good news priced in over the last few weeks.”

Canada’s currency has gained 0.2 percent this year versus nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The greenback has dropped 2.9 percent and the yen has been the biggest loser, tumbling 12 percent. Norway’s krone leads gainers, up 4.9 percent.

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

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

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