C$ hits 1-month low as CPI, global fears weigh

Fri Aug 20, 2010 5:03pm EDT
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By Claire Sibonney

TORONTO (Reuters) - The Canadian dollar slid to a one-month low against the U.S. dollar on Friday as risk appetite soured over revived fears of slowing global growth and domestic inflation data came in below market expectations.

Canadian consumer prices charged higher in July as new sales taxes took effect in Ontario and British Columbia, but underlying inflation remained tame, fueling doubts about how fast the Bank of Canada would continue to raise interest rates as the recovery loses steam.

The currency slid as low as C$1.0515 to the U.S. dollar, or 95.10 U.S. cents, its lowest level since July 20. It closed at C$1.0488, or 95.35 U.S. cents, down from C$1.0399 to the U.S. dollar or 96.16 U.S. cents on Thursday.

"The soft inflation numbers for Canada just added further weight to the notion that the Bank of Canada would have to go on hold on rates at some point soon and that's a negative for the Canadian dollar," said Avery Shenfeld, chief economist at CIBC World Markets.

The consumer price index rose 0.5 percent in July, following a 0.1 percent fall in June. Analysts in a Reuters poll had forecast a 0.6 percent monthly rise for an annual rate of 1.9 percent.

Core CPI, which excludes volatile items and the effects of tax changes, fell by 0.1 percent on the month after decreasing by 0.1 percent in June.

A poll conducted by Reuters after the data showed Canada's primary securities dealers still predict the central bank will raise interest rates for a third time this year in September, but uninspiring economic data has cast doubt on the pace of future increases.

The Canadian dollar, however, was already weaker heading into the inflation report, as investors dumped stocks, commodities and commodity-linked currencies following Thursday's poor U.S. jobs and manufacturing numbers.   Continued...