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Winnipeg Free Press - PRINT EDITION

Loonie loses steam as interest rates hold

By: Malcolm Morrison

Posted: 08/18/2012 1:00 AM | Comments: 0

TORONTO -- The Canadian dollar closed lower Friday as the latest reading on inflation made it more unlikely the central bank will raise interest rates any time soon.

The loonie declined 0.25 of a cent to 101.1 cents US after closing Thursday at a fresh 3 1/2-month high.

Statistics Canada reported the consumer price index declined 0.1 per cent on a seasonally adjusted basis in July, after decreasing 0.2 per cent in June. Economists had looked for a 0.1 per cent rise. This marked the third consecutive monthly decline in the seasonally adjusted CPI. The agency said Friday consumer prices rose at an annual rate of 1.3 per cent in the 12 months to July, following a 1.5 per cent gain in June.

The cost of living in Manitoba increased at one of the fastest rates in the country in July -- 1.8 per cent. The only province with a higher annual inflation rate was Quebec at 1.9 per cent.

Manitoba's July rate was also up from the previous month, when it was 1.4 per cent. Statistics Canada said some of the consumer goods and services that saw the biggest price increases over the past year were homeowners' home and mortgage insurance (up 10.3 per cent), homeowners' maintenance and repairs (9.3 per cent) and gasoline (5.2 per cent).

Losses in the Canadian dollar picked up after the release of Canada's inflation report, since the data "suggest little near-term inflationary pressures in the domestic economy, another reason for the Bank of Canada to keep rates on hold," observed CIBC World Markets economist Emanuella Enenajor.

The currency fell about five cents in May and early June to around the 96-cent US level when the European debt crisis took a turn for the worse as markets focused on high debt levels in Spain. Nervous traders bailed out of risky investments such as equities, commodities and resource-based currencies such as the loonie and piled into U.S. Treasuries. But optimism has improved on hopes central bankers are prepared to do whatever is necessary to keep the economic recovery on track and preserve the European monetary union.

This was also the case Friday when traders reacted favourably to remarks by German Chancellor Angela Merkel during her visit to Ottawa.

She said Thursday her country -- Europe's biggest economy -- is committed to doing everything it can to maintain the euro currency union.

There have also been high hopes the U.S. Federal Reserve will announce another round of economic stimulus in September. But such a move has been thrown into doubt in the wake of recent positive economic data, including better-than-expected readings on job creation, retail sales and industrial production.

-- The Canadian Press / staff

Republished from the Winnipeg Free Press print edition August 18, 2012 B5

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