The Canadian dollar fell to a four-week low after the Bank of Canada left interest rates unchanged
and repeated concern that low inflation and weak exports are
hindering the nation’s economy.
The currency weakened against most of its major peers after
Bank of Canada Governor Stephen Poloz left the benchmark
interest rate at 1 percent and reiterated that future moves
could be either up or down depending on economic data. Canada’s
currency has been the worst performer among Group of 10 peers
against the U.S. dollar during the past 12 months as the central
bank began voicing concern about persistently low inflation and
the importance of a weaker Canadian dollar to boost the exports.
“As long as the economy is soft, and as long as there’s
uncertainty about U.S. growth, and as long as exports remain
tepid, I think the Bank of Canada is going to be very careful
not to say or do anything to trigger a strengthening in the
currency,” said Emanuella Enenajor, an economist at Bank of
America Corp., by phone from New York. “The bank is likely to
err on the side of caution.”
The loonie, as the Canadian dollar is known for the image
of the aquatic bird on the C$1 coin, fell 0.3 percent to
C$1.0940 per U.S. dollar at 5:05 p.m. in Toronto. It reached the
weakest level since May 6. One Canadian dollar buys 91.41 U.S.
cents.
Bond Moves
Canada’s benchmark 10-year bond fell after erasing gains
earlier today. The yield rose one basis point, or 0.01
percentage point, to 2.35 percent, reaching the highest level
since May 13. The 2.5 percent security maturing in June 2024
dropped nine cents to C$101.32.
The loonie also weakened as a government report showed an
unexpected trade deficit for April.
Canada’s merchandise trade balance swung to a deficit of
C$638 million ($584 million), after a revised surplus of C$766
million in March, Statistics Canada said in Ottawa. Economists
surveyed by Bloomberg forecast a C$200 million surplus, based on
the median of 19 forecasts.
“Business investment and export growth has not shown a
pickup in growth to the same extent that they thought,” Adrian Miller, director of fixed-income strategy at GMP Securities LLC,
said by phone from New York before the data. “Talking down the
loonie, while maintaining the stated neutral bias, which
provides the bank with flexibility, is currently the primary
policy tool.”
Economic Growth
Canada’s economic growth slumped in the first quarter as a
harsh winter in North America slowed housing construction,
business spending and exports.
Gross domestic product grew at a 1.2 percent annualized
pace in January through March, compared with a downwardly
revised 2.7 percent in the prior three months, a report last
week showed. Economists surveyed by Bloomberg predicted growth
would slow to a 1.8 percent pace.
A report Friday will show hiring rebounded in May with
25,000 new positions created after the country lost 28,900 jobs
the previous month, according to the median estimate of a
Bloomberg survey of 22 economists.
Canada’s consumer price index rose 2 percent from a year
ago in April, with energy prices jumping 8.4 percent, Statistics
Canada said May 23.
BOC Policy
“Weighing recent higher inflation readings against
slightly increased risks to economic growth leaves the downside
risks to the inflation outlook as important as before,” BOC
policy makers said in a statement from Ottawa. Future economic
data will determine “the timing and direction” of the next
move, the bank said.
The central bank said it was focused on the core rate,
which excludes eight volatile products, and climbed 1.4 percent
in April after a prior gain of 1.3 percent, still
“significantly below 2 percent.” The bank forecast in April
that core inflation won’t reach 2 percent until the start of
2016 because spare economic capacity will restrain price gains.
“The Bank of Canada did not change their read on low
inflation, despite the move up in headline inflation to 2
percent,” said Greg Anderson, head of global foreign-exchange
strategy at Bank of Montreal, by phone from New York. “The data
suggests they should have expressed less worry about low
inflation, but they didn’t. And they didn’t presumably because
they wanted the Canadian dollar not to strengthen.”
The loonie has fallen 3.3 percent this year among 10
developed-nation peers tracked by Bloomberg Correlation-Weighted
Currency indexes. The U.S. dollar fell 0.1 percent.
Courtesy: bloomberg
--------------------------------------------------------------------------------------------------------------------------
The views and opinions expressed herein are the author’s own, and do not necessarily reflect of intradaylivetips.com
No comments:
Post a Comment