Canadian dollar down as traders avoid risk, data shows inflation rise

By Malcolm Morrison

THE CANADIAN PRESS

TORONTO — The Canadian dollar’s latest run towards parity with the U.S. dollar stalled on Friday morning amid sliding commodity prices and data showing a slight rise in inflation.

The currency was down 0.29 98.94 cents US after closing at a two-month high Thursday as traders avoided risky assets such as resource-based currencies and commodities. The dollar hasn’t closed above parity since May 8.

Statistics Canada reported that the country’s annual inflation rate rose 0.3 of a percentage point to 1.5 per cent in June, from 1.2 per cent the previous month.

On a month-to-month basis, the consumer price index fell 0.4 per cent from May.

The increase in the annual rate was mostly attributed to base-effects to June 2010, when gas prices were receding and the cost of new automobiles fell by over three per cent.

Oil prices slipped after rising Mideast tensions sent crude up by almost $3 on Thursday.

The August crude contract on the New York Mercantile Exchange fell $1.80 to US$90.86 a barrel.

Crude rose about five per cent last week as the oil market responded to a series of events that have raised concerns that Iran will try to block oil shipments through the Strait of Hormuz, a narrow waterway in the Persian Gulf through which one-fifth of the world’s oil travels every day.

Metals were also lower with copper down nine cents to US$3.45 a pound. Bullion fell $5.20 to US$1,575.20 an ounce.

The risk-on sentiment grew as the yield on Spain’s benchmark 10-year bond ran up to 7.05 per cent on Friday, from 6.98 per cent the previous day. A rate of seven per cent and above is widely considered too expensive for the Spanish government to pay for more than a few months.

Yields rose even as finance ministers from the 17 euro countries were expected to approve a bailout for Spanish banks.

But investors fear that the Spanish government could in the meantime face new costs helping its banks and could eventually need rescue loans itself.

08:48ET 20-07-12