Forex - USD/CAD gains on soft Canadian inflation data

A A A - The U.S. dollar rose against its Canadian counterpart on Friday after softer-than-expected inflation data repelled investors away from the loonie.

Better-than-expected consumer sentiment numbers in the U.S. bolstered the greenback's appeal.

In U.S. trading on Friday, USD/CAD hit 1.0279, up 0.86%, up from a low of 1.0181 and off a high of 1.0312.

The pair sought to test support at 1.0083, Monday's low, and resistance at 1.0312, the earlier high.

Canada's consumer price index contracted 0.2% in April from March, defying expectations for a 0.1% gain.

The country's core CPI, stripped of volatile food and energy costs, rose 0.1%, less than market expectations for a 0.2% gain, sparking talk the Bank of Canada has room to trim interest rates if need be.

Meanwhile in the U.S., the Thomson Reuters/University of Michigan's preliminary consumer sentiment index rose to 83.7 in May from 76.4 in April, surging past expectations for a rise to 78.0.

The report added inflation expectations for this month remained unchanged at 3.1%.

The numbers came a day after Federal Reserve Bank of San Francisco President John Williams said that monetary authorities may begin to unwind stimulus programs this summer and possibly end such policies by year end.

Philadelphia Fed President Charles Plosser, a known inflation hawk, added separately that the Fed should consider scaling back the program next month.

Monetary stimulus tools, such as low interest rates, dovish language and the Fed's monthly USD85 billion asset-purchasing program, weaken the dollar to spur recovery, and their dismantling would allow the greenback to firm.

The Canadian dollar, meanwhile, was down against the euro and up against the yen, with EUR/CAD up 0.45% and trading at 1.3190 and CAD/JPY up 0.03% at 100.36.
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This article appears in: Investing , Forex and Currencies

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