CANADA FX DEBT-C$ hits 7-month high on inflation data, oil

Wed May 20, 2009 10:07am EDT
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* C$ climbs as high as C$1.1401, or 87.71 U.S. cents

* Canada annual inflation rate in April drops to 14-yr low

* Bonds flat to higher (Adds details, quotes)

By Jennifer Kwan

TORONTO, May 20 (Reuters) - Canada's currency shot to a seven-month high on Wednesday, lifted by rising oil and equities prices as well as inflation data that was seen as making it less likely that the Bank of Canada will resort to unconventional measures, or quantitative easing, to stimulate the economy.

Canada's annual inflation rate in April dropped to a 14-year low of 0.4 percent from 1.2 percent in March due to lower energy prices, Statistics Canada said.

The core inflation rate fell to 1.8 percent from 2.0 percent in March and was in line with expectations. [ID:nOTT001607]

"The inflation backdrop the Bank of Canada sees, confirmed by this data, is that it does not see a significant deflation risk developing in the Canadian economy so the threat of quantitative easing, is easing," said David Watt, senior currency strategist RBC Capital Markets.

Before the data was released, traders in London said there were rumors of the numbers had been leaked and would be weaker than expectations. Similar rumors of a leak had surfaced on May 8. [ID:nN08495131]   Continued...