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CPI could move Canadian dollar

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CPI could move Canadian dollar

Canadian inflation data are scheduled for release Thursday, giving investors another means in which to gauge policymakers’ stance on interest rates. The Bank of Canada adopted a neutral stance on interest rates last year amid signs the economy was losing momentum.

Consumer price inflation rose 1.4 percent annually in March, according to a forecast of market analysts. The same forecast calls for core inflation to increase 1.3 percent.

Statistics Canada’s previous report showed consumer inflation rose 1.1 percent annually in February, following a gain of 1.5 percent the previous month.

Key inflation data will be released one day after the Bank of Canada opted to hold the overnight rate at 1 percent for the 29th consecutive policy meeting. The BOC also remarked today that the lower Canadian dollar will “exert temporary upward pressure on total CPI inflation.” This prompted a swift selloff of the loonie. By the late afternoon session, the Canadian dollar was down 33 pips at 0.9075 US.

Strong CPI data could boost the Canadian dollar Thursday, although the markets may still move in lockstep with the Bank of Canada’s dovish stance toward interest rates. While the recent run of strong economic data has diminished downside risks to inflation, the central bank is still trying to boost Canadian competitiveness. A weaker currency could do just that.

For its part, the BOC has said repeatedly it wasn’t seeking to push down the Canadian currency. However, the BOC’s January monetary policy report illustrated that officials were still concerned about the strength of the loonie, a sign the country’s export recovery was not materializing.

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