Canadian Dollar Rises as Annual Inflation Accelerates in August

By Michael J. Moore

Sept. 23 (Bloomberg) -- Canada's dollar rose for a fourth day, its longest winning streak in more than three months, after a government report showed inflation accelerated last month.

The Canadian dollar strengthened versus 14 of the 16 most- actively traded currencies. Futures contracts showed traders reduced bets for more rate cuts as so-called core inflation reached the highest since October 2007.

``The core was slightly higher than expected,'' said Todd Elmer, currency strategist at Citigroup Global Markets Inc. in New York. ``What that signals is that the Bank of Canada may be more patient than some anticipated, and I think that leaves some Canadian dollar upside moving forward as interest-rate expectations continue to rebound.''

Canada's dollar strengthened 0.2 percent to C$1.0343 per U.S. dollar at 8:06 a.m. in Toronto, from C$1.0358 yesterday. The currency rose during a four-day period ended June 19. One Canadian dollar buys 96.69 U.S. cents.

The Canadian dollar strengthened yesterday after commodities rose and the U.S. dollar weakened versus most of its global counterparts.

Excluding gasoline and seven other volatile items, core inflation reached 1.7 percent in August from a year earlier and 0.3 percent from July. Economists predicted it would be unchanged at 1.5 percent from a year earlier, and 0.1 percent on a monthly basis.

Bank of Canada

The Bank of Canada left its benchmark interest rate unchanged at 3 percent on Sept. 3. The rate is ``appropriately accommodative,'' while inflationary pressures ``remain elevated,'' the central bank said. The key rate was cut four times between December and April.

Bankers' acceptances futures contracts for December rose to 3.20 percent from 3.14 percent yesterday, suggesting traders in Canada have reduced bets for more rate cuts. The futures settled at a three-month lending rate averaging 16 basis points above the central bank's target since Bloomberg started tracking the data.

The yield on the two-year government bond rose 2 basis points, or 0.02 percentage point, to 2.87 percent. The price of the 2.75 percent security due in December 2010 fell 3 cents to C$99.77.

To contact the reporter on this story: Michael J. Moore in New York at Mmoore55@bloomberg.net.