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Canadian Dollar Rallies off Strong CPI, Retail Sales

H.S. Borji
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Canadian Dollar Rallies off Strong CPI, Retail Sales

The Canadian dollar surged against its US counterpart Friday as Canadian inflation rose at the sharpest rate in more than two years and retail sales registered their biggest increase in 11 months.

The Canadian dollar rallied to 0.9291 US, advancing 0.52 percent to its highest level since January. The loonie is now pacing for a 0.9 percent advance this week.

The loonie advanced 0.72 percent against the yen, sending the CADJPY to 94.89.

The EURCAD declined 0.8 percent to 1.4601.

Canadian inflation in May surged past the central bank’s 2 percent target, Statistics Canada reported today in Ottawa. The consumer price index accelerated 2.3 percent annually, the fastest rate since February 2012. Economists forecast a gain of 2.1 percent.

Month-on-month, consumer prices advanced 0.5 percent.

The Bank of Canada earlier this month downplayed the sharp rise in consumer prices in April, citing temporary factors such as higher energy prices as the main catalyst for the advance.

Energy prices were once again on the rise in May. The price of gasoline increased 6.3 percent in the 12 months through May, while natural gas prices surged 21.3 percent, official data showed.

The BOC also said earlier this month core prices were still well below the central bank’s target. However, the latest figures suggest core prices are also on the rise.

So-called core consumer prices, which exclude volatile elements such as food, energy and alcohol, advanced 1.7 percent in the 12 months through May, following a gain of 1.4 percent the prior month.

Month-on-month, core prices advanced 0.5 percent.

Rising inflation will give policymakers more to think about at next month’s rate meeting. The BOC in April predicted inflation would not reach its 2 percent target until the first quarter of 2015.

In other data, Canadian retail sales surged in April, advancing 1.1 percent to an all-time high of CAD $41.6 billion. Sales volumes – the component used to calculate real gross domestic product – accelerated 0.8 percent.

Canada’s GDP advanced at an annualized rate of 1.1 percent in the first quarter, weighed down by severe weather. Statistics Canada said earlier this month wholesale trade increased 1.2 percent in April. Combined with the latest retail trade data, April figures suggest the Canadian economy rebounded sharply at the start of the second quarter.

The latest data will extinguish some of the bearish sentiment surrounding the Canadian dollar, which many expect will fall below 90 US cents by the end of the year. A weaker loonie has been credited with improving business conditions for Canadian exporters, according to a recent semi-annual report from Economic Development Canada.

The EDC said business optimism among Canadian exporters in the spring was the highest since the 2003-2006 boom period. The spring edition of the trade confidence index increased 1.8 points to 77.2.

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