Canadian dollar posts one-week high on inflation spike before paring gains

Fri Feb 24, 2017 4:46pm EST
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By Fergal Smith

TORONTO (Reuters) - The Canadian dollar notched a one-week high against its U.S. counterpart on Friday after data showed a spike in domestic inflation, but some gains were pared ahead of a Bank of Canada interest rate decision next week.

Economists say the central bank will put more stock in its three measures of core inflation which were all below 2 percent. But the jump in headline inflation to its highest annual rate in more than two years of 2.1 percent caught market participants off guard.

"It is a pretty eye-catching number," said Andrew Kelvin, senior rates strategist at TD Securities.

"This is certainly more substantial than we'd anticipated."

Bank of Canada Governor Stephen Poloz said in January that an interest rate cut remains on the table if the risks facing the country are realized. He warned of "material consequences" if U.S. President Donald Trump enacts protectionist policies.

"It is hard to see them being as dovish as they were last time," said Michael Goshko, corporate risk manager at Western Union Business Solutions.

Improved domestic and global data, higher oil prices and reduced risk of trade disruptions have improved the outlook for Canada's commodity-linked currency, Goshko added.

On Thursday, U.S. Treasury Secretary Steven Mnuchin said he does not see any changes to the North American Free Trade Agreement in the short term.   Continued...

File Photo: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015.   REUTERS/Mark Blinch/File Photo