July 22, 2020 / 8:31 PM / 14 days ago

CANADA FX DEBT-C$ at 6-week high vs U.S. dollar after data shows jump in inflation

    * Canadian dollar at C$1.3415 or 74.54 U.S. cents
    * Bond prices mixed across the maturity curve

 (Updates prices, adds comment)
    By Saqib Iqbal Ahmed
    July 22 (Reuters) - The Canadian dollar rose to a
near-six-week high against its U.S. counterpart on Wednesday,
after data showed Canada's annual inflation rate in June posted
its biggest acceleration in more than nine years.
    The inflation rate spiked as restrictions imposed to curb
the coronavirus outbreak were lifted, Statistics Canada said on
Wednesday.             
    The Canadian dollar        was at C$1.3415 to the greenback,
or 74.54 U.S. cents, stronger than Tuesday's close of C$1.3456,
or 74.32 U.S. cents.    
    "In terms of the Bank of Canada, I don’t think it has a lot
of bearing on what the central bank plans on doing with policy,"
said Royce Mendes, senior economist at CIBC Capital Markets.
    "The key to remember here is the bank is trying to get a
sense of the underlying pace of inflation. So this one-month
move, while large in isolation, probably won’t change their view
of the economy and how much inflation it’s likely to be able to
generate," Mendes said.
    The Bank of Canada - which says interest rates will remain
near record lows for another two years - predicts inflation will
remain weak in the near term.             
    "Given the huge amount of spare capacity that has opened up,
we doubt that core inflation will return to 2% on a sustained
basis within the next few years," Stephen Brown, senior Canada
economist at Capital Economics, said in a note.
    The loonie, which has been in a narrow range against the
greenback for the past seven weeks, has benefited from the
recent recovery in the price of oil, one of Canada's major
exports, and a broad weakness in the U.S. dollar.
    On Wednesday, Canadian government bond prices were mixed
across the maturity curve. The two-year            yield was at
0.282% up from 0.272% late on Tuesday, while the benchmark
Canadian 10-year             yield slipped to 0.507% from
Monday's 0.518%.

 (Reporting by Saqib Iqbal Ahmed in New York; Additional
reporting by Allison Lampert in Montreal; Editing by Jonathan
Oatis and Peter Cooney)
  
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