Canada Dollar Erases Loss as Inflation Hits Target Rate

The Canadian dollar advanced against all but one of its 16 major peers after the nation’s inflation rate quickened in April to reach the central bank’s target for the first time in two years.

Canada’s currency gained for a second day against against the U.S. dollar, erasing an earlier loss, as the consumer price index rose 2 percent from a year ago, with energy prices jumping 8.4 percent, Statistics Canada said in Ottawa. Bank of Canada Governor Stephen Poloz has indicated a neutral outlook on whether the next interest rate move will be up or down as he focuses on the risks posed by low inflation.

“The idea that the weakness we saw in the Canadian dollar could be directly attributed to an increasingly dovish central bank, I think that narrative has run its course,” David Tulk, chief macro-strategist at Toronto-Dominion Bank’s TD Securities, said in a telephone interview. “We still think the Canadian dollar will weaken, but it won’t necessarily be caused by a fall in Canadian inflation. It’s more because of U.S. dollar strength on an outright basis.”

The loonie, as the currency is known for the image of the waterfowl on the C$1 coin, rose 0.2 percent to C$1.0870 at 2:27 p.m. in Toronto after earlier dropping 0.2 percent. It trimmed its weekly loss to 0.1 percent.

Core Rate

The core inflation rate, which excludes eight volatile products, climbed 1.4 percent after a prior gain of 1.3 percent. Both increases matched the median forecasts in Bloomberg News surveys.

The gain in energy costs was the fastest since November 2011 and included a 6.6 percent increase in gasoline and a 4.6 percent rise in electricity rates, Statistics Canada said.

Poloz said last month he will dismiss “transitory” price gains and focus instead on spare economic capacity that will keep core inflation below 2 percent until the first quarter of 2016. Today’s report is the last before a June 4 decision on the bank’s policy interest rate, which has been 1 percent since September 2010, the longest pause since the 1950s.

“Headline print at 2 percent is not at all surprising -- the market was expecting it, and the numbers by and large were bang on the screws,” Jack Spitz, managing director of foreign exchange at National Bank of Canada, said by phone from Toronto. “It changes nothing at the Bank of Canada, and from a currency perspective it’s not likely to push dollar/Canada out of its fairly narrow range.”

The currency has traded in a one-cent range, between C$1.0851 and C$1.0942, with its U.S. peer this week.

The central bank maintained its “neutral” view on the direction of the 1 percent benchmark interest rate at its policy meeting on April 16. The inflation rate hadn’t exceeded the Bank of Canada’s 2 percent target since February 2012.

The loonie has dropped 3 percent this year, the most after Sweden’s krona among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Currency indexes. The greenback fell 0.5 percent. The dollars or New Zealand and Australia lead gainers, up 4 percent and 3.5 percent.

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