C$ hits monthly low after inflation data

Fri Mar 23, 2012 8:47am EDT
 
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By Jon Cook

TORONTO (Reuters) - The Canadian dollar touched a monthly low against its U.S. counterpart on Friday after data showed Canada's annual inflation rate edged up in February to 2.6 percent from a rate of 2.5 percent in January.

Core inflation, which excludes eight volatile items including gasoline and some food, sped up to 2.3 percent versus market expectations of 2.2 percent rate, Statistics Canada said on Friday. On a monthly basis, the headline consumer price index climbed 0.4 percent, under pressure from higher gasoline and clothing prices.

The Bank of Canada targets 2 percent inflation within a control range of 1 percent to 3 percent.

The Canadian dollar softened after the data, touching a monthly low at C$1.0033 versus the greenback, or 99.67 U.S. cents. It was at C$1.0001 immediately before the report was released.

"The headline was a little bit lower than expected and it was a little bit higher than expected on the core measure," said Mazen Issa, macro strategist at TD Securities. "You wouldn't expect it to have a major impact on the Canadian dollar unless it was completely off consensus."

At 8:30 a.m. (1215 GMT), the Canadian dollar stood at C$1.0017 against the U.S. currency, or 99.83 U.S. cents, down from Thursday's North American session close at C$0.9997 versus the U.S. dollar, or $1.0003.

Following the inflation data, traders slightly increased their bets the Bank of Canada would increase its key interest rate in late 2012, reflected in overnight index swaps, which are priced based on expectations for the policy rate.

"It puts the headline measure in the upper range for the Bank of Canada and it may make some feel a bit uncomfortable," said Issa. "We still see it consistent with them staying on hold for some time now."   Continued...