Forex News –Canada’s inflation rate falls, weakening the loonie

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Canada’s annual inflation rate fell in December according to a report by Statistics Canada on Friday. CPI  dropped to 2.3 percent from 2.9 percent in November driven by a slower increase in gasoline prices and lower prices for passenger vehicles.

Meanwhile, the yearly core inflation rate fell to 1.9 percent from 2.1 percent in November.

The Canadian dollar fell to a session low after the data, pushing the USDCAD pair up to 1.0160 to the U.S. dollar, from around 1.0138 just before the data. On Thursday the Candian dollar was near to parity with USD, having reached a six-week high against the greenback at 99.30 US cents, (C$1.0070).

Meanwhile, a separate report today showed Canada’s wholesales declined 0.4 percent in November versus a 0.5 percent gain forecast. This was down from a previous 0.9 percent rise.

Scotia Capital’s Chief Currency Strategist, Camilla Sutton commented on the CPI data:

“Obviously much softer-than-expected right across the board, and a negative month-over-month print.”

“For the Canadian dollar, it just takes some of the pressure off of the Bank of Canada and potentially increases the already built-up expectations for the potential of a rate cut in Canada”

“It was a little bit better on the seasonally-adjusted than on the headline, so that would be probably the only positive side in terms of (the Canadian dollar).”

“But all in all inflation in Canada less of a concern and that opens the door for the Bank of Canada to not have inflation as a binding force on it.”