C$ weakest since late August after tame CPI

Fri Oct 19, 2012 2:38pm EDT
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By Claire Sibonney

TORONTO (Reuters) - The Canadian dollar fell to its weakest level against the U.S. currency in nearly two months on Friday, hit by soft domestic inflation data and renewed worries about corporate profits.

Prices in Canada remained tame in September with inflation at 1.2 percent, unchanged from August. The absence of inflation pressure could set the stage for the Bank of Canada to ease its hawkish bias when it holds its next policy meeting on Tuesday.

"A lot of traders were readjusting their expectations this morning," said Mark Frey, chief market strategist at Cambridge Mercantile Group, in Victoria, British Columbia.

Higher interest rates tend to help a country's currency appreciate because they often attract international capital flows and vice versa.

Canada's risk-related currency was also vulnerable to the perceived lack of progress on a Spanish bailout request, which reminded investors of the headwinds facing the global economy.

"Today's data aside, the overall macro environment and risk with respect to equities and commodities is what drives the Canadian dollar nine days out of 10," added Frey.

At 2:20 p.m. (1820 GMT) the Canadian dollar was trading at C$0.9928 to the greenback, or $1.0073, compared with C$0.9849, or $1.0153, at Thursday's North American close.

The currency hit an intraday low of C$0.9939, or $1.0061, its weakest level since August 24, a day after sliding on a host of negative factors including softer equity and commodity markets.   Continued...