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Canadian Dollar Rallies, Poised for Weekly Gain of 1.6%

H.S. Borji
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The Canadian dollar climbed for the fourth time in five days against its US counterpart, as core Canadian inflation rose faster than forecast in August, while a dearth of economic data in the United States kept speculation to a minimum.

The loonie, as the Canadian currency is called, climbed to an intraday high of 0.9181 US. It would subsequently consolidate at 0.9157, US, advancing 0.15 percent. The loonie has been on an upward climb since Monday, supported by strong Canadian manufacturing data, stimulus measures in China and a renewed commitment for low interest rates from the US Federal Reserve.

The Canadian dollar has advanced 1.6 percent against the greenback this week.

In economic data, Canadian consumer prices were up across the board in August, as all 12 components of the closely watched consumer price index increased.

Consumer prices rose 2.1 percent in the 12 months through August, unchanged from the previous month, Statistics Canada reported today in Ottawa. Economists forecast an identical increase.

So-called core inflation, which strips away volatile elements such as food and energy, advanced 0.5 percent in August, following a 0.1 percent drop the previous month. Year-on-year, this translated into a gain of 2.1 percent. Economists forecast an annual gain of 1.8 percent.

In other news, Canadian wholesale sales unexpectedly declined in July, as declines in five sub-sectors offset growth in motor vehicle and parts sales.

Wholesale sales decreased 0.3 percent in July, following a 0.8 percent advance the previous month, StatsCan confirmed today. Economists forecast a gain of 0.6 percent.

The loonie was supported on Tuesday after the federal statistics agency said manufacturing shipments reached a record high in July, a sign the country’s export sector was benefiting from a weaker currency and stronger US demand. Manufacturing shipments edged up 2.5 percent to CAD $53.66 billion, official data showed.

Meanwhile, the People’s Bank of China this week announced it will inject $81 billion into the banking system in an effort to combat slower-than-forecast growth in the world’s second-largest economy.

As a commodity-driven currency, the loonie benefits from a stronger Chinese economy.

The loonie also received a boost on Wednesday after the Federal Reserve said it plans to keep interest rates at a record low for a “considerable time.” The US central bank, which reduced the pace of bond buying by another $10 billion to $15 billion, will probably close the books on quantitative easing next month. However, the Fed appears to be in no rush to begin lifting interest rates, despite market speculation that an earlier rate-hike could materialize.

The US had no economic data to report on Friday. The markets will receive key housing data next week, including the latest figures on home sales and housing prices.

On Thursday the Commerce Department said building permits and housing starts declined sharply in August, tempering expectations for a broad rebound in the residential real estate market.

Building permits declined 5.6 percent to a seasonally adjusted annual rate of 998,000, while housing starts tumbled 14.4 percent to 956,000, official data showed.

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