Canadian Dollar Falls Against Peers as Consumer-Price Gains Slow

The Canadian dollar fell against the majority of its most-traded peers as inflation slowed to the bottom of the central bank’s target rate last month, prompting speculation interest rates will stay on hold.

The currency rose against the yen after Japan received approval to continue its stimulus efforts from the Group of 20, which said the policy is meant to stimulate domestic demand rather than devalue the currency. Canada’s consumer-price index rose 1 percent in March from a year ago following a 1.2 percent gain the prior month, Statistics Canada said today from Ottawa. The core rate, excluding eight volatile products, was unchanged at 1.4 percent. Economists surveyed by Bloomberg forecast an 1.1 percent overall rate and 1.4 percent core rate.

“The fundamentals are eroding to support the Canadian dollar close to parity,” Clement Gignac, chief economist at Industrial Alliance Insurance and Financial Services Inc., said by phone from Quebec City. “The Canadian dollar will enter into a new range in the coming weeks that will be a few cents lower than what we have seen in the first quarter.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, was little changed at C$1.0266 per U.S. dollar at 5:00 p.m. in Toronto. One loonie buys 97.41 U.S. cents. The currency rose 1.4 percent to 96.94 yen.

Weekly Loss

The currency posted a weekly loss of 1.3 percent versus the greenback after falling the most since 2011 on April 15 as gold led commodities down with its biggest loss in 33 years.

Canada’s 10-year government bond yields were little changed at 1.71 percent. The 1.5 percent security maturing in June 2023 fell 6 cents to C$98.07.

Futures on crude oil, Canada’s largest export, rose 0.3 percent to $87.96 per barrel and the Standard & Poor’s 500 Index of U.S. stocks rose 0.9 percent.

Global finance chiefs handed Japan leeway to reflate its stagnant economy by indicating its fresh round of monetary stimulus doesn’t contravene a pact to avoid a currency war.

Meeting for the first time since the Bank of Japan unleashed new measures aimed at delivering 2 percent inflation within two years, Group of 20 finance ministers and central bankers said today in Washington that those actions are “intended to stop deflation and support domestic demand.” They echoed their promise of February that nations will refrain from “competitive devaluation” and avoid “persistent exchange-rate misalignments.”

‘Artificial Support’

“The Japanese are fundamentally devaluing their currency and its part of the fundamental strategy, and to a lesser extent there’s somewhat of a race to the bottom,” said Mark Frey, chief market strategist at Cambridge Mercantile Group a foreign exchange and payments provider, by phone from Victoria, British Columbia. “What it means for the Canadian dollar is it provides artificial support for the Canadian dollar at a time when the domestic economic situation is turning weaker.”

Bank of Canada Governor Mark Carney kept unchanged on April 17 both his policy interest rate and his bias to tighten, even as he chopped his growth forecast for 2013 and singled out easier monetary policy around the world as contributing to a strong Canadian dollar that is inhibiting growth.

Policy makers in Ottawa held the benchmark rate on overnight loans between commercial banks at 1 percent for the 21st consecutive meeting and cut the growth outlook for this year to 1.5 percent from 2 percent.

‘No Pressure’

“If we have low CPI, then there’s no pressure on the Bank of Canada to raise interest rates,” said Aaron Fennell, a futures specialist at Scotiabank’s ScotiaMcLeod unit by phone from Toronto. “It means the dollar is weaker.”

UBS AG, the world’s fourth-largest currency trader, initiated a bet on a weaker Canadian dollar after the Bank of Canada rate decision on the increased chance the central bank will adopt an easier stance on monetary policy as Carney, who is leaving to take over as head of the Bank of England, is replaced as governor.

The currency will fall to as low as C$1.0550 per U.S. dollar by July 25, a week after Carney’s replacement is due to make his first decision on interest rates, UBS analyst Geoffrey Yu said in an interview with Bloomberg News yesterday from London. The bank could cut rates or abandon its warnings that the next move would be to increase to interest rates in the next three months, Yu said.

The Canadian dollar has lost 0.2 percent this month against nine other developed-nation currencies tracked by the Bloomberg Correlation Weighted Index. The Australian dollar has lost 1.2 percent while the U.S. dollar has lost 0.2 percent.

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