Canada Afternoon: C$ Ends Sharply Higher After Strong CPI
Posted on 20. Mar, 2007 by admin in Forex News
Canada Afternoon: C$ Ends Sharply Higher After Strong CPI
TORONTO (Dow Jones)–The Canadian dollar registered its largest one-day gain of 2007 to end sharply higher Tuesday, after an unexpectedly strong Canadian February consumer price index report provided the catalyst to break the currency free of its recent pattern of stifling range-trading.
The U.S. dollar was trading at C$1.1608 at 3:37 p.m. EDT (1937 GMT), from C$1.1697 at 8:00 a.m. EDT (1200 GMT), and from C$1.1778 late Monday.
Following narrow and uneventful overnight dealings, the Canadian currency shot rapidly higher in the immediate wake of news that Canada’s February consumer price index was far stronger than expected with 0.7% monthly and 2.0% yearly gains in all-items inflation, and a 2.4% increase in core inflation.
The data was generally seen as making it even more unlikely that the Bank of Canada would consider cutting interest rates, and played into a generally more favorable market attitude toward the Canadian dollar.
The Canadian currency had recently been languishing in a relatively narrow and indeterminate range trade in the mid-C$1.1700s, but the CPI data and other recent events seem to have finally provided some compelling reasons for some currency players to leg into fresh Canadian dollar positions.
The Canadian dollar may also be benefitting from a slight ebbing of political risk in Canada now that the minority Conservative government’s budget for the 2007-08 fiscal year handed down late Monday seems assured of legislative approval and prospects for a spring federal election have receded.
While the Canadian dollar outperformed all other widely-traded currencies Tuesday, its gains also came against a global backdrop of wariness toward the U.S. dollar, sparked by lingering U.S. economic concerns and also somewhat dubious reports that China will no longer accumulate foreign exchange reserves.
These factors all combined to spark Tuesday’s explosive rally for the Canadian dollar and may leave it with the potential for follow-through gains, though most currency watchers caution that the Canadian unit despite the scope of its latest rally is still firmly within its year-to-date C$1.1550 to C$1.1850 trading range.
The view of many is that the present bullish Canadian dollar tone could just easily erode with the release of a soft Canadian January retail sales report Wednesday, or else an unexpectedly hawkish tilt to the U.S. Federal Reserve’s interest rate statement.
“I think everybody is sort of at a loss to discern any major direction change – we just test both ends of the range,” said Don Mikolich, executive director of foreign exchange at CIBC World Markets in Toronto. “It’s hard to say we’ve begun any meaningful trend change here, just because I don’t think anything fundamental has changed to justify it, and we’ve seen these kind of moves before only to bounce back the other way.”
These are the exchange rates at 3:37 p.m. EDT (1937 GMT), 8:00 a.m. EDT (1300 GMT), and late Monday.
USD/CAD 1.1608 1.1697 1.1778 EUR/CAD 1.5462 1.5536 1.5668 CAD/JPY 101.03 100.71 99.78
-By Paul Evans; Dow Jones Newswires; 416-306-2022; paulr.evans@dowjones.com
