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Canadian Dollar Gains Traction as CPI Steadies in February

H.S. Borji
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The Canadian dollar rebounded on Friday, as steadying inflation reassured investors the Bank of Canada would hold off on cutting interest rates further in the coming months.

The loonie, as the Canadian dollar is known, climbed to a session high of 0.7947 cents US.

The USDCAD exchange plunged around 110 pips to 1.2600. The technical indicators have turned bearish. Initial support is located at 1.2410 and resistance at 1.2815.

The US dollar was weaker across the board on Friday after rebounding from its Federal Reserve-induced plunge in the middle of the week. The US dollar index fell 1.14 percent to 98.13. The index had climbed to a new 12-year high last week, but has since retreated on lukewarm interest rate expectations.

In economic data, Canada’s inflation rate steadied in February, as declining gas prices were offset by other consumer goods and services. Canada’s consumer price index rose 1 percent annually in February, following an identical increase the previous month, the federal statistics office reported on Friday.

So-called core inflation eased to 2.1 percent in the 12 months through February from 2.2 percent the previous month.

Gas prices continued to be the biggest downward contributor to inflation, official data showed. Gas prices tumbled 21.8 percent year-over-year. However, February’s decline was smaller than the one observed in January, when gasoline prices fell 26.9 percent.

Excluding gasoline, inflation rose 2.2 percent annually.

In a separate report today Statistics Canada said retail sales declined more than forecast in January, as lower gas prices continued to weigh on the economy.

Retail receipts tumbled 1.7 percent, much worse than the 0.7 percent drop forecast by economists. January was the second consecutive monthly decrease. Retail sales had dropped 1.8 percent in December.

In total, seven of the 11 subsectors representing 83 percent of retail trade declined in January. Excluding sales at gas stations, retail receipts were down 0.8 percent.

Declining retail sales could put a dent in Canada’s GDP. According to analysts, the Canadian economy is on pace to grow below 1 percent in the first quarter. The BOC forecasts GDP growth of only 1.5 percent in the 12 months through June, nearly one percentage point below previous estimates. The province of Alberta is expected to enter a mild recession this year as the local economy copes with the protracted decline in energy prices.

Alberta, which is the heart of Canada’s oil and gas industry, has seen retail sales decline for four consecutive months. Sales fell 2.8 percent in January, official data showed.

Crude prices rebounded on Friday amid broad US dollar weakness. US crude (West Texas Intermediate) rose nearly 3 percent to $45.65 a barrel. Global benchmark Brent crude advanced more than 1.4 percent to $55.21 a barrel.

Crude prices are forecast to remain under pressure for the rest of the year as the global supply glut continues to weigh on the market.

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