Canadian dollar holds steady after inflation data

Wed Jul 23, 2008 9:08am EDT
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By Frank Pingue

TORONTO (Reuters) - The Canadian dollar was little changed against the U.S. dollar on Wednesday as domestic inflation data that topped expectations did not alter widespread expectations for the Bank of Canada to leave its key interest rate steady.

Domestic bond prices were pinned lower across the curve, but the move was seen as spillover from a slide in the bigger U.S. Treasury market given talk of higher interest rates south of the border.

At 8:30 a.m., the Canadian unit was at C$1.0083 to the U.S. dollar, or 99.18 U.S. cents, up from C$1.0084 to the U.S. dollar, or 99.17 U.S. cents, at Tuesday's close.

The latest Canadian data showed the annual inflation rate rose past expectations to 3.1 percent in June from 2.2 percent in May, while core inflation stood at 1.5 percent.

Since the headline inflation number beat expectations for a rise of 2.9 percent, the Canadian dollar initially jumped to C$1.0065 to the U.S. dollar, or 99.35 U.S. cents, before moving back to its pre-data level about a minute later.

That's largely because the Bank of Canada said last week inflation would peak at 4.3 percent early next year, and so Tuesday's data lacked the punch to spark a sustained move in the dollar.

"The market's attention span is probably not quite that great at the moment," said Shaun Osborne, chief currency strategist at TD Securities. "Unfortunately it's the usual thing with foreign exchange where we get the data, we look at the headline and we move on to the next issue."

In its Monetary Policy Report update last week, the Bank of Canada said soaring oil prices would lift headline inflation as high as 4.3 percent in early 2009, while core inflation, which strips out volatile food and energy prices, should stay within the bank's 1 percent to 3 percent target range.   Continued...