Forex News – Canadian Dollar weaker after lower inflation data

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The Canadian Dollar moves off its 3 ½ year high against the U.S. Dollar following weaker than expected inflation data released today.

Canada’s inflation rate in June came out tamer, easing to 3.1 percent on a year on year basis, falling from an eight-year high of 3.7 percent. Economists predicted inflation to be 3.6 percent in June.

The weaker numbers, though still marginally above the Bank of Canada’s target inflation, will give reason for the bank not to hike interest rates soon. Core inflation, which excludes volatile items like gasoline, unexpectedly fell to 1.3 percent on a year on year basis versus 1.8 percent in May, and lower than expectations of 1.9 percent.

“To deliver 1.3 (percent) — it caught the market looking the other way,” said Jack Spitz, managing director of foreign exchange at National Bank Financial.

Following the CPI data, USDCAD rose to a high of 0.9516 from the session low of 0.9428. The Dollar had briefly touched close to the 2007 low before rising against the loonie.

Meanwhile, Canadian Retail sales data were also released at the same time, higher than expectations. But this did little to affect the loonie, since inflation data had more influence.

“The retail sales number was a good number but it’s not going to drive the Bank of Canada to raise rates in and of itself,” said Shane Enright, executive director, foreign exchange sales at CIBC World Markets.