Loonie lower on declining inflation, less volatility on financial markets

TORONTO – The Canadian dollar closed lower Friday amid data showing tame inflationary pressures.

The loonie lost 0.22 of a cent to 88.68 cents US as Statistics Canada reported that Canada’s cost of living was up 0.2 per cent in September on a seasonally adjusted basis after increasing 0.1 per cent in August.

The country’s annual inflation rate was 2.0 per cent in September, following a 2.1 per cent increase the previous month. The data met economists’ expectations.

The greenback gained strength on hopes for further stimulus from the U.S. Federal Reserve.

St. Louis Federal Reserve Bank president James Bullard said Thursday that the Fed should consider delaying the end of its massive bond purchase program, given declining inflation expectations.

That program of quantitative easing is set to end at the end of October, which has been one of the reasons for the volatility on markets over the last month that has slashed the value of equities across the board. The program has been credited with keeping long-term rates low and fuelling a strong rally on stock markets over the last few years.

The volatility has also resulted in markets flocking to the perceived safe haven of the U.S. dollar, which has punished the loonie and helped drive down commodity prices, which are priced in the American currency.

Beyond the end of QE, traders have also been unnerved over a recent run of data pointing to economic weakness practically everywhere except the United States.

Oil prices closed little changed Friday with November crude up five cents to US$82.75 a barrel.

December copper was up two cents at US$3 a pound and December gold bullion faded $2.20 to US$1,239 an ounce.