Canadian Dollar Remains Lower as Consumer Prices Drop in July

By Matt Townsend

Aug. 19 (Bloomberg) -- Canada’s dollar remained lower against its U.S. counterpart after a government report showed consumer prices fell in July more than economists forecast.
The Canadian currency, nicknamed the loonie, depreciated 0.6 percent to C$1.1078 per U.S. dollar at 7:04 a.m. in Toronto, from C$1.1011 yesterday.

The consumer price index decreased 0.9 percent last month from a year earlier, Statistics Canada said today in Ottawa. The median forecast of 23 economists in a Bloomberg News survey was for a drop of 0.8 percent. Prices fell at an annual rate of 0.3 percent in June, the first drop since 1994.
The loonie strengthened 21 percent from early March through July, prompting Canadian Finance Minister Jim Flaherty to say on Aug. 4 that unspecified “steps” may be taken to slow its appreciation. The currency posted two straight weekly losses this month.

Bank of Canada policy makers on July 21 kept the benchmark interest rate at a record low of 0.25 percent, where it has been since April, and reiterated that they plan to leave it unchanged through June 2010. They said the loonie’s strength was “significantly moderating” an economic recovery that had been quicker than they anticipated. The central bank’s next rate meeting is scheduled for Sept. 10.

Canada’s currency will strengthen to C$1.08 against the U.S. dollar by the end of next year, according to the median forecast in a Bloomberg News survey of 37 economists.

To contact the reporter on this story: Matt Townsend in Montreal at mtownsend9@bloomberg.net
Last Updated: August 19, 2009 07:07 EDT