The Canadian dollar sunk close to a five-year low against its US counterpart today after the latest consumer price data showed that Canadian inflation dropped faster than expected in November. The Consumer Price Index (CPI) for Canada declined 0.4% last month following a 0.1% rise in October; the consensus estimate had been for a fall of 0.2%. The drop pushes the year-on-year change in the index down to 2.0% from 2.4% in the month prior.
By Peter Martin
Saturday, December 20, 2014
This reduction in the rate of inflation underlines comments made by Stephen Poloz, the Governor of the Bank of Canada, last week suggesting Canada’s economy will not return to steady growth with inflation sustainably on target for another couple of years. The Loonie weakened against the US dollar in the wake of the CPI report and by early afternoon in New York, USD/CAD was up 0.40% at 1.1622. Canadian retails sales were more encouraging, remaining unchanged in October, versus expectations for a 0.2% decline, for a year-on-year change of +4.9%.
Yen weakness after BoJ meeting
The Japanese yen also weakened against the US dollar, following the final policy decision for 2014 from the Bank of Japan. No change to the central bank’s benchmark interest rate was as widely expected, though the outcome of an overwhelming majority voting to maintain the current, unprecedented level of stimulus was less certain. The Bank of Japan’s board voted 8 to 1 in favor of keeping its asset purchases at an annual pace of JPY 80 trillion. This vote was a lot more comfortable than the close five to four vote in favor of a stimulus increase at the end of October. The bank claimed in its statement that inflation is ‘likely to be around the current level for the time being’ despite the sharp fall in the price of oil. USD/JPY climbed 0.57% to 119.50.
Dollar rises against major peers
The US dollar has displayed broad strength today, lifted by talk from Fed officials of a possible interest rate hike in the first half of 2015 and a more positive view of December manufacturing offered by the latest Fed regional survey. Though the Fed statement on Wednesday said that the use of ‘patient’ as the description of its approach to normalizing monetary policy was equivalent to the previously used ‘considerable time’, Janet Yellen in her press conference said she expects the current stance to be appropriate for ‘the next couple of meetings’ but also added that ‘no meeting is completely off the table’ for a rate hike.
Most manufacturing indicators this week have suggested a slowdown in conditions this month, but the Kansas City Manufacturing Index points the other way for the Tenth District. The index climbed to 8 in December from November’s reading of 7, showing moderate expansion despite prices broadly easing.
EUR/USD fell 0.51% to 1.2223 and GBP/USD dropped 0.27% to 1.5627.
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