Canadian inflation rate dives...Cdn dollar drops.....interest rates to stay low.....trade to benefit.
The only losers in this scenario as I see it are the Canadian retirees (snowbirds) that head to Florida, Arizona or Texas for the winter and require US dollars. Boo Hoo to them. Oh Jeez...that's me. Grandpa loses...sons win. All is well in the universe.
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Gulf Daily News
Vol XXVII NO. 183 Sunday 19 September 2004
Canadian dollar is hit by low inflation rate
TORONTO: The Canadian dollar fell hard after Canada's inflation for August came in well shy of expectations and prompted a new debate on the pace of future Bank of Canada interest rate hikes.
Bonds initially powered up on the data, but the gains had dissipated by session's end.
The Canadian currency finished at C$1.2976 to the US dollar, or 77.07 US cents, down from C$1.2904, or 77.50 US cents, at Thursday's close.
The currency has been one of the more volatile currencies against the greenback this month, but has largely stayed in a C$1.2850 to C$1.3050 range.
"From a technical and positioning standpoint, the stage was set for a retracement in dollar/Canada, we just needed a catalyst," said George Davis, chief technical strategist at RBC Capital Markets. "The numbers today were right up that alley."
Canada's annualised rate of inflation cooled to 1.9 per cent in August, missing forecasts of a fall to 2.1pc, from 2.3pc in July largely due to the easing cost of petrol.
The Bank of Canada's measure of core inflation, which strips out volatile energy prices and some food, was 1.5pc in August, short of expectations it would remain unchanged from July's 1.9pc.
The Bank of Canada raised its overnight rate to 2.25pc last week, and the market had been expecting another hike in October, with a good chance of a hike in December.
Analysts noted that part of the decline was due to weak auto prices, which the central bank would be likely to dismiss as a temporary effect.
Still, the weak data will significantly up the scrutiny markets will pay to Bank of Canada Governor David Dodge when he speaks in Calgary tomorrow.
"Where that would have been a non-event before this release, now it has become an event, something that people are going to be looking very closely at for indications as to how the Bank of Canada views this sudden drop in the rate of inflation," said Marc Levesque, chief strategist of foreign exchange and fixed income at TD Securities.
The low inflation sent bond prices skyward, but they couldn't hold on to the gains by session's end, although Canadian issues outperformed their US counterparts.
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