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Canadian Dollar Edges Closer to 0.92 US on CPI

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Canadian Dollar Edges Closer to 0.92 US on CPI

The Canadian dollar advanced against its US counterpart Friday, edging closer toward 0.92 US cents as inflation hit the central bank’s 2 percent target for the first time in two years.

The Canadian dollar climbed 0.13 percent to 0.9192 US, its highest level since Monday.

Canadian consumer prices rose 0.3 percent in April, following a 0.6 percent increase the prior month, Statistics Canada reported today in Ottawa. The advance was in line with forecasts.

Year-on-year, consumer prices accelerated 2 percent for the first time since April 2012, led by higher energy prices. That puts consumer price inflation in line with the Bank of Canada’s target rate, which effectively removes the possibility of a rate cut at this time.

Core inflation – stripping volatile products such as food and energy – climbed 0.2 percent month-on-month and 1.4 percent annually. Both figures were in line with forecasts.

Prices rose across all major components in the 12 months to April, led by higher shelter, transportation and food costs. Shelter costs advanced 3.3 percent year-on-year, after rising 2.7 percent the prior month. Transportation costs rose 2.8 percent over the same period, following a gain of 1.7 percent the prior month. Food prices advanced 1.9 percent year-on-year, after climbing 1.5 percent in March.

The provinces of British Columbia and Ontario saw consumer prices accelerate the fastest in the 12 months to April.

The loonie is on pace for a weekly decline of 0.1 percent, triggered by weaker than forecast Canadian wholesale sales data. Wholesale sales declined 0.4 percent in March, following a gain of 1.1 percent, official data showed. Sales volume – a component used by economists in calculating gross domestic product – declined 0.2 percent. Sales volume had increased 0.8 percent in February, the biggest advance since July 2013.

Statistics Canada will report on first quarter GDP growth next Friday.

The Canadian dollar has advanced more than 1.8 percent over the past three months, driven by a gradually improving domestic market. The loonie has also taken advantage of a weaker US dollar, allowing it to test the 0.92 US level several times over the past two months.

Policymakers at the Bank of Canada, who target inflation at 2 percent, were forced to abandon their rate-hike bias last year in favour of a neutral stance, fueling speculation the central bank could cut interest rates if the economy continued to stagnate. With inflation rising, the possibility of a rate cut is likely off the table for now. However, the BOC is likely to maintain its neutral stance toward interest rates for the time being.

The BOC’s benchmark rate has been left at 1 percent since September 2010.

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