Canadian dollar firmer after October inflation data

Fri Nov 23, 2012 10:14am EST
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By Alastair Sharp

TORONTO (Reuters) - The Canadian dollar firmed on Friday after data showed consumer prices rose a bit more than expected in October, though analysts cautioned inflation pressures remain benign and interest rate increases are still a long way off.

The currency had touched a session high against the U.S. dollar immediately after the release of the data, which showed prices rose for almost all consumer items, but held below the central bank's 2 percent target.

"What we have in Canada are inflation levels that are well-contained and even though we saw the headline ticked up slightly more than expected, core was fairly subdued," said Camilla Sutton, chief currency strategist at Scotiabank.

"Taken as a whole, I don't think this makes any material change to expectations for the Bank of Canada."

By late morning, the Canadian currency was at C$0.9956 to the greenback, or $1.0044, up from C$0.9972, or $1.0028 at Thursday's North American close.

Year-on-year inflation in October held steady at 1.2 percent, unchanged from September but above the 1.1 percent forecast of market players. Core inflation, which strips out prices for gasoline and other volatile items, was unchanged at 1.3 percent. Market players had forecast 1.2 percent core inflation.

"On the surface it could weigh on the currency, given that it suggests the Bank of Canada will not be raising rates for a while," said Sal Guatieri, senior economist at BMO Capital Markets.

Even so, overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that traders increased their small bets on a rate hike in late 2013 slightly after the data was released.   Continued...