Canada’s dollar rose, touching the strongest level against the greenback in more than three years, as investors took Bank of Canada statements to mean the central bank may become more aggressive with interest-rate increases. Gains by the currency, nicknamed the loonie, were tempered after a government report yesterday showed inflation didn’t increase as much as forecast, quelling speculation the central bank would raise interest rates as soon as September. The currency fell this week against 13 of its 16 most-traded counterparts before a report next week forecast to show the nation’s economy grew at a faster pace in May than April. “It provided a bit of a counterpoint to what we had earlier in the week in terms of the hawkishness,” said Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc., a unit of Canada’s second-largest bank, by phone from Toronto, referring to the inflation report. “It does suggest there’s no rush to tighten. There’s a chance that we see the Canadian dollar soften up a little.” The Canadian currency strengthened 0.6 percent to 94.80 cents against the greenback, from 95.32 cents on July 15, its second weekly gain. It touched 94.23 cents on July 21, the strongest since Nov. 9 2007. One Canadian dollar purchases $1.0549. The loonie depreciated 0.9 percent to C$1.3613 against the euro, and fell 0.2 percent to 82.85 yen, from week-earlier levels. Retail Costs Consumer prices advanced 3.1 percent in June from a year earlier after a 3.7 percent gain in the previous month, Statistics Canada said yesterday in Ottawa. The median forecast of 24 economists in a Bloomberg News survey was for a 3.6 percent rate of increase. “That’s got to be one of the worst misses on CPI that I’ve seen,” said David Love, a trader of interest-rate derivatives at the brokerage Le Groupe Jitney Inc. in Montreal, said via e- mail, referring to the consumer price index. Yields on the six-month overnight index swap, a security based on what investors expect the central bank’s rate will average during that period, dropped 2.8 basis points to 1.11 percent after the CPI number, after climbing 7.9 percent during the three days since Bank of Canada policy makers said July 19 that monetary stimulus “will be withdrawn.” The statement omitted the word “eventually” that had been contained in previous releases. Central Targets The central bank held the target rate for overnight loans between commercial banks at 1 percent on July 19, where it’s been since September after they raised it three times in 2010. “Time is on the bank’s side,” TD’s Osborne said. He predicted the Canadian dollar will fall to parity with its U.S. counterpart by year-end. “They don’t have to rush to tighten here in particular with the Canadian dollar as firm as it is. It puts the onus on the data to provide the smoking gun.” Canada’s gross domestic product expanded 0.1 percent in May from a month earlier, according to the median of 20 forecasts compiled by Bloomberg News. Statistics Canada is due to report the numbers on July 29 in Ottawa. The nation’s government bonds dropped during the week, pushing the yield on benchmark two-year debt eight basis points higher to 1.49 percent. The price of the 2 percent security maturing in August 2013 fell 17 cents to C$101. Bond Returns Canada’s government bonds made 1.1 percent this month, compared with 0.3 percent for global sovereign bonds, according to Bank of America Merrill Lynch data through July 21. The Canadian currency weakened from about 94.35 cents per U.S. dollar to 94.65 cents during the 40 minutes before Statistics Canada released the CPI data at 7 a.m. Toronto time yesterday. “There was, once again, heavy speculation about the number before the release,” said Sebastien Galy, a senior foreign- exchange strategist at Societe Generale SA in London, via e- mail. Canada’s statistics agency made economic data available to companies licensed to distribute its data up to 59 seconds before the official publication time for more than six years, according to a KPMG LLP report published yesterday on Ottawa- based Statistics Canada’s website. “KPMG contacted a number of licensed distributors and concluded that it is unlikely that any data were actively released to their clients prior to the official release time,” a Statistics Canada summary of the report said. Statistical Inquiry The KPMG investigation was ordered in December by then- Industry Minister Tony Clement. The agency stopped the practice on Nov. 25 after being alerted to it by Bloomberg News. “Statistics Canada applies strict security procedures during media lockups to prevent release of protected information prior to official release time,” Peter Frayne, the head of Statistics Canada’s media relations in Ottawa, wrote in an e- mail yesterday. “These procedures were followed during this morning’s lockup and we have no indication that anything unusual occurred.” The loonie has weakened 1.4 percent this year versus the currencies of nine other developed nations, according to Bloomberg Correlation-Weighted Currency Indexes. To contact the reporter on this story: Chris Fournier in Halifax, Nova Scotia at cfournier3@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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