Dollar closes higher after strong CPI data

Thu Jun 19, 2008 5:12pm EDT
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar rose against the U.S. dollar on Thursday as domestic data topped estimates, but a sharp drop in oil prices dragged the currency from the two-week high it reached early in the session.

Domestic bond prices fell across the curve as data that showed inflation in Canada rose in May triggered talk about Bank of Canada rate hikes.

The Canadian dollar closed at C$1.0152 to the U.S. dollar, or 98.50 U.S. cents, up from C$1.0181 to the U.S. dollar, or 98.22 U.S. cents, at Wednesday's close.

The currency's rally got under way early in the session when a report showed inflation rose 2.2 percent in May, from a 1.7 percent rise in April and ahead expectations.

It added to the gains and hit a two-week high when a report released shortly after showed Canadian wholesale trade jumped 1.4 percent in April from March, also comfortably ahead of estimates for an increase of 0.6 percent.

The Canadian currency shot to C$1.0108 to the U.S. dollar, or 98.93 U.S. cents, which marked its highest level since June 4. But concerns that a move by China to raise fuel prices could curb demand for oil, a key Canadian export, shook the dollar.

"It looked like we were going to keep rallying and then we get news out of China on fuel prices and oil prices come back and cut the legs out of the Canadian dollar's rally," said David Watt, senior currency strategist at RBC Capital Markets.

"So you get two pieces of good news, one piece of bad news so literally you get that two steps forward and one step back and now we're left in a range."   Continued...