TORONTO (Dow Jones)--The Canadian dollar held steady early Friday, with the country's consumer price index doing little to alter expectations about the path of monetary policy in Canada.
The U.S. dollar was at C$1.0006 Friday, from the same level ahead of the data, and C$0.9993 late Thursday, according to data provider CQG.
Inflation in February was reported largely in line with market expectations, with higher energy and food costs keeping prices elevated.
The closely watched core rate, which strips out volatile-priced items such as food and energy, climbed at a 2.3% annual rate, a tick above market estimates for a 2.2% advance.
Meanwhile, the all-items index rose at an annual 2.6%, one tick faster than the prior month, but one tick slower than the market was braced for, according to economists at Royal Bank of Canada.
"The Bank of Canada will likely look through today's reading, as the annual pace was boosted by base year effects," including a weaker index level last February, said Emanuella Enenajor, economist at CIBC World Markets. As those effects wash away next month, she said, core inflation might well ease back to central bank's inflation target range.
Most economists at Canada's primary securities dealers see the central bank standing pat on its 1.00% overnight target rate until sometime next year, putting the Bank of Canada on a rate-hiking path long before the U.S. Federal Reserve is due to embark on one of its own.
The market is a bit more hawkish on Canada's rates, with the central bank repeatedly voicing concerns about broad economic risks associated with near-record household debt levels in the country.
The overnight indexed swap, considered the most accurate gauge of market expectations, early Friday was pricing in a 35% chance of a 25-basis-point increase in December, said Mark Chandler, head of Canadian fixed income and currency research at RBC Capital Markets.
The Canadian dollar has outperformed much of the world's major currencies this year, buoyed by positive economic surprises in U.S. economic data and what an improving American economy might mean for monetary policy in Canada.
But RBC analysts George Davis and Stewart Hall caution that the market might be "underestimating the resolve of the BOC to remain on the sidelines, preferring instead to leverage regulatory and supervisory agents rather than working through the interest rate channels."
-By Karen Johnson, Dow Jones Newswires; 416-306-2022; karen.johnson@dowjones.com
