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Canadian Dollar Below 90Ę Again as Markets Speculate on Interest Rate MovesTuesday, February 25, 2014 > 09:20:05
(Globe & Mail – Michael Babad)
Statistics Canada gave something of a boost to the sick Canadian dollar today, with a report showing inflation ticking higher, but it wasn’t enough to push the currency back above the 90-cent mark.
The loonie, as the country’s dollar coin is known, sank below 90 cents U.S., regaining just some ground to stand at about 89.8 cents within minutes of the agency’s readings on consumer prices in January and retail sales in December.
Markets are watching such measures closely amid speculation over where the Bank of Canada might be headed.
The central bank is particularly focused at this point on persistently low inflation. And while some players are betting it will yet cut its benchmark rate from the current 1%, most don’t see that happening.
Inflation now stands at its highest since the summer of 2012, but is expected to dip again this month but inch higher again over time.
“The near-term gyrations in the inflation measures will not significantly affect the bank’s policy stance as it is the medium-term outlook that drives their policy,” said assistant chief economist Dawn Desjardins of Royal Bank of Canada. “In that regard, we expect inflation to drift higher.
When you take everything into account, Ms. Desjardins said, the central bank will probably hold its key rate steady for the rest of the year, and bring in a hike in the second quarter of next year.
The loonie has slipped markedly over the course of the past year, but has ticked up recently. Now, said chief currency strategist Camilla Sutton of Bank of Nova Scotia, a string of weak economic indicators and an increasingly dimmer view of the currency is driving it back down.
Consumer prices pick up
Canada’s annual inflation rate now stands at 1.5%, slightly above what economists had projected and up from 1.2% in December.
Juicing the pick-up in consumer prices in January were higher costs for shelter, which climbed 2.1% as renters paid more and homeowners paid more for insurance. And everyone paid more for electricity.
So-called core prices, which strip out volatile items and help guide the Bank of Canada, rose 1.4% in January, inching up from December’s 1.3%.
“In seasonally adjusted terms, prices were only up 0.2% month-over-month led by higher shelter costs, so this wasn’t really that much of a break in trend,” said chief economist Avery Shenfeld of CIBC World Markets.
“But the higher year-over-year rates in January provide a cushion that will dampen any shock from an expected drop in February CPI yearly rates (as a big number drops out from the prior year), making it less likely that markets will reinstate expectations for BoC easing.”